[PrinceofDubtown]

Becker’s Audit B Sim #4 reads as follows:

“LOSE Big Inc, a US Company, is a defendant in a lawsuit alleging infringement of certain patent rights. However, ultimate outcome of the litigation cannot be reasonable estimated by management. Janice Jones, CPA, believes there is a reasonable possibility of a significantly material loss, but the lawsuit is adequately disclosed in the notes to the financial statements.

Select which opinion types can be used.”

The answer given in the answer key, per Becker, is “issue the independent auditor’s report about modification.” I know that this is one option, however, the book (on page A1-24) says that an auditor also has the option of disclosing an uncertainty related to the outcome of unusually important litigation or regulatory action. As such, shouldn’t that also be a right answer? Did becker get it wrong? Any help would be appreciated.

FAR - 92 (7/13)
AUD - 98 (10/13)
REG - 92 (7/14)
BEC - 95 (8/14)

[Anonymous]

I think the issue here is the the CPA feels the need/wants to disclose more information, which he/she has the right to do so if wanted. So if a CPA wants to emphasize a matter (which is said explicitly in the question that she does) then the report would be modified with an emphasis of matter paragraph. If this was not said in the question, I would say it would be an unmodified opinion.

[Anonymous]

I think the issue here is the the CPA feels the need/wants to disclose more information, which he/she has the right to do so if wanted. So if a CPA wants to emphasize a matter (which is said explicitly in the question that she does) then the report would be modified with an emphasis of matter paragraph. If this was not said in the question, I would say it would be an unmodified opinion.

[futureCPA201314]

For Chapter 1: Audit Simulation #10, it states, ” which citation in the professional standards provides an example of an appropriate opinion when the updated report on the financial statements of a prior period contains an opinion different from that previously expressed?”

answer is: AU-C 706.A13.

could someone please explain how this is right? I thought AU-508.69 would be correct.

[futureCPA201314]

For Chapter 1: Audit Simulation #10, it states, ” which citation in the professional standards provides an example of an appropriate opinion when the updated report on the financial statements of a prior period contains an opinion different from that previously expressed?”

answer is: AU-C 706.A13.

could someone please explain how this is right? I thought AU-508.69 would be correct.

[JY]

@OP

Did you mean “without modification”? I think issuing an unmodified opinion is correct in this case. There doesn't seem to be a GAAP or GAAS problem in this particular situation.

Since the outcome is uncertain and the amount of potential loss can not be reasonably estimated, the company doesn't have to accrue anything regarding the contingency at the end of the year.

Since the situation was also adequately disclosed in the notes to the financial statements, the auditor doesn't need to add an other matter or emphasis of matter paragraph.

Since there is no GAAP or GAAS problem, we can issue a report with no modification, aka unmodified opinion.

REG: 86 8/3/13
BEC: 85 8/31/13
FAR: 87 10/27/13
AUD: 90 11/30/13

[JY]

@OP

Did you mean “without modification”? I think issuing an unmodified opinion is correct in this case. There doesn't seem to be a GAAP or GAAS problem in this particular situation.

Since the outcome is uncertain and the amount of potential loss can not be reasonably estimated, the company doesn't have to accrue anything regarding the contingency at the end of the year.

Since the situation was also adequately disclosed in the notes to the financial statements, the auditor doesn't need to add an other matter or emphasis of matter paragraph.

Since there is no GAAP or GAAS problem, we can issue a report with no modification, aka unmodified opinion.

REG: 86 8/3/13
BEC: 85 8/31/13
FAR: 87 10/27/13
AUD: 90 11/30/13

[Author]

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