Management Believes and the Auditor Is Satisfied, That a Material

question 73

Multiple Choice

Management believes and the auditor is satisfied, that a material loss probably will occur when pending litigation is resolved. Management is unable to make a reasonable estimate of the amount or range of the potential loss, but fully discloses the situation in the notes to the financial statements. If the auditor wishes to call attention to the matter and management does not make an accrual in the financial statements, the auditor should issue a(an)

• A) Qualified report due to a scope limitation.
• B) Qualified report due to a departure from GAAP.
• C) Unqualified/unmodified report with an explanatory/emphasis-of-matter paragraph.
• D) Unqualified/unmodified report in a standard auditor's report.

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Definitions:

Emergent Property

A complex trait or characteristic that arises from the interaction of simpler elements or systems and cannot be predicted from the properties of the individual elements.

Experimental Group

A group of subjects in an experiment who are exposed to the variable under investigation to study its effect.

Independent Variable

The variable in an experiment that is manipulated or changed by the researcher to determine its effect on the dependent variable.

Placebo

A substance with no therapeutic effect, often used as a control in testing new drugs.