This Question Presents Independent Factual Situations an Auditor Might Encounter

Multiple Choice

This question presents independent factual situations an auditor might encounter in conducting an audit. List B represents the report modifications (if any) that would be necessary. Select as the best answer for each item, the action the auditor normally would take. The report modifications in List B may be selected once, more than once, or not at all. Assume: - The auditor is independent. - The auditor previously expressed an unqualified opinion on the prior year's financial statements. - Only single-year (not comparative) statements are presented for the current year. - The conditions for an unqualified opinion exist unless contradicted in the factual situations. - The conditions stated in the factual situations are material. - No report modifications are to be made except in response to the factual situation. Item to Be Answered An entity is a defendant in a lawsuit alleging infringement of certain patent rights. However, the ultimate outcome of the litigation cannot be reasonably estimated by management. The auditor believes there is a reasonable possibility of a significantly material loss, but the lawsuit is adequately disclosed in the notes to the financial statements. List B Report Modifications

A) Describe the circumstances in an explanatory paragraph preceding the opinion paragraph without modifying the three standard paragraphs.
B) Describe the circumstances in an explanatory paragraph following the opinion paragraph without modifying the three standard paragraphs.
C) Describe the circumstances in an explanatory paragraph preceding the opinion paragraph and modify the opinion paragraph.
D) Describe the circumstances in an explanatory paragraph following the opinion paragraph and modify the opinion paragraph.
E) Describe the circumstances in an explanatory paragraph preceding the opinion paragraph and modify the scope and opinion paragraphs.
F) Describe the circumstances in an explanatory paragraph following the opinion paragraph and modify the scope and opinion paragraphs.
G) Describe the circumstances within the scope paragraph without adding an explanatory paragraph.
H) Describe the circumstances within the opinion paragraph without adding an explanatory paragraph.
I) Describe the circumstances within the scope and opinion paragraphs without adding an explanatory paragraph.
J) Issue the standard auditor's report without modification.