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Management of Edgington 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 under U.S. auditing standards?
a. Unmodified with an emphasis-of-matter paragraph.
b. “Except for” qualified.
c. Unmodified without an emphasis-of-matter paragraph.
d. Disclaimer of opinion.Explanation
Choice “c” is correct. The note presented describes an uncertainty that is properly disclosed. An emphasis-of-matter paragraph is not required in the unmodified opinion under U.S. auditing standards.Can someone please explain why?? I chose answer A, b/c in the book it says an emphasis-of-matter paragraph is used when referring to a matter that is appropriately presented or disclosed in the F/S (which is what the explanation says) and is of such importance that it is fundamental to the users’ of the F/S
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