Management of Edington Industries plans to disclose an uncertainty as follows: The Company is a defendant in a lawsuit alleging infringement of certain patent rights and claiming damages. Discovery proceedings are in progress. The ultimate outcome of the litigation cannot presently be determined. Accordingly, no provision for any liability that may result upon adjudication has been made in the accompanying financial statements. The auditor is satisfied that sufficient audit evidence supports management's assertions about the nature and disclosure of the uncertainty. What type of opinion should the auditor express under these circumstances?

Question

Quizplus · Accepted Answer

Choice "A" is correct. The note presented describes an uncertainty that is properly disclosed. An explanatory paragraph is not required in the unqualified opinion. Choice "B" is incorrect. A "subject to" qualified opinion should never be issued. Choice "C" is incorrect. Since the auditor is satisfied that the assertion and disclosure are supported by the existing evidence, a qualified opinion is not required. Choice "D" is incorrect. Since the auditor is satisfied that the assertion and disclosure are supported by the existing evidence, there is no need for the auditor to disclaim an opinion.

Management of Edington Industries Plans to Disclose an Uncertainty as Follows