Management determined it was probable that a pending litigation claim would result in a material loss. The loss was disclosed in the footnotes to the financial statements but was not accrued in the income statement. If the auditors believe an accrual should be made, what type of report should be issued?
A)Standard report.
B)Unqualified opinion with an explanatory paragraph.
C)Qualified opinion based on a circumstance-imposed scope limitation.
D)Qualified or adverse opinion based on a departure from GAAP.

Question

Quizplus · Accepted Answer

If the auditors believe an accrual should be made but management has not done so, the financial statements are not in conformity with GAAP. In this case, the auditors would issue a qualified or adverse opinion based on a departure from GAAP.

Management Determined It Was Probable That a Pending Litigation Claim