An entity accomplished an early extinguishment of debt and the auditors believe that literal application of GAAP would cause recognition of a loss that would materially distort the financial statements and cause them to be misleading.Given these facts,the auditors would probably choose which reporting option?
A) Explain the situation and issue an adverse opinion.
B) Explain the situation and issue a disclaimer of opinion.
C) Explain the situation and issue an unqualified opinion, relying on Rule 203 of the AICPA Code of Professional Conduct.
D) Issue the standard report.

Question

Quizplus · Accepted Answer

The auditors would explain the situation and issue an unqualified opinion, relying on Rule 203 of the AICPA Code of Professional Conduct. Rule 203 allows auditors to depart from literal application of GAAP if they believe that it would cause the financial statements to be misleading. However, the auditors must disclose the departure from GAAP and explain the reasons for it in the audit report, which would result in an unqualified opinion with an explanatory paragraph.

An Entity Accomplished an Early Extinguishment of Debt and the Auditors