An entity is being sued for substantial damages for producing a faulty product. However, while the result of the litigation will not be known for some time, it believes that the claim is unjustified and that it will be successful in defending the action. It has included appropriate reference to the lawsuit in the financial report. What type of audit opinion should be issued?
A) A qualified opinion.
B) An adverse opinion.
C) A disclaimer of opinion.
D) An unmodified opinion with an Emphasis of Matter section.

Question

Quizplus · Accepted Answer

An unmodified opinion with an Emphasis of Matter section is the best choice. The entity has appropriately disclosed the lawsuit in the financial report. As the litigation outcome is uncertain, the auditor should issue an unmodified opinion with an Emphasis of Matter section to draw attention to the disclosure of the lawsuit in the financial report.

An Entity Is Being Sued for Substantial Damages for Producing