Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

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What is the auditor's opinion if management adequately discloses a litigation uncertainty?

Qualified opinion.
Unmodified opinion.
Disclaimer of opinion.
Adverse opinion.

The correct answer is: Unmodified opinion.

When management adequately discloses a litigation uncertainty, the auditor forms an unmodified opinion. This type of opinion indicates that the financial statements present a true and fair view of the entity's financial position and performance in accordance with the applicable financial reporting framework. In this scenario, the auditor has found sufficient evidence that the uncertainty surrounding the litigation is appropriately disclosed in the notes of the financial statements. This means that users of the financial statements have been informed of the potential impact of the litigation on the entity's financial standing, aligning with the principles of transparency and proper disclosure required in financial reporting. An unmodified opinion signifies that there are no material misstatements in the financial statements and that they have been prepared according to generally accepted accounting principles. It reflects the auditor’s confidence that the financial statements can be relied upon by stakeholders for making informed decisions. This opinion is the most favorable an auditor can provide, indicating that, overall, the financial statements are in good compliance with the relevant accounting standards.