Management of Hill Company has decided not to account for a material transaction in accordance with the provisions of an FASB Standard. In setting forth its reasons in a note to the financial statements, management has clearly demonstrated that due to unusual circumstances the financial statements presented in accordance with the FASB Standard would be misleading. The auditor's report should include a separate explanatory paragraph and contain a(an):

Question

Quizplus · Accepted Answer

Choice "D" is correct. In unusual circumstances, where the literal application of accounting standards would make the FS misleading (e.g., new legislation or new business practices), the proper accounting treatment is that which will more fairly present the FS. In such a case, the auditor should express an unqualified opinion on the financial statements and include a separate explanatory paragraph. Choice "A" is incorrect. Under the circumstances, the method of accounting selected by the client is justified. There is no need for an "except for" qualification. Choice "B" is incorrect. "Subject to" opinions are not acceptable under any circumstances. Choice "C" is incorrect. An adverse opinion is not appropriate since the statements as prepared by the client are fairly presented.

Management of Hill Company Has Decided Not to Account for a Material