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

What type of opinion should an auditor express if the ultimate outcome of a lawsuit cannot be determined?

1. Unmodified opinion without an emphasis-of-matter paragraph.

2. Unmodified opinion with an emphasis-of-matter paragraph.

3. Disclaimer of opinion.

4. Qualified opinion with an "except for" statement.

The correct answer is: Unmodified opinion without an emphasis-of-matter paragraph.

In the scenario where the ultimate outcome of a lawsuit cannot be determined, the appropriate action for the auditor is to express an unmodified opinion with an emphasis-of-matter paragraph. This approach is warranted because it allows the auditor to convey that while the financial statements are presented fairly in all material respects, there is a significant uncertainty related to the lawsuit that users of the financial statements should be aware of. An unmodified opinion signifies that the financial statements are free from material misstatement, which is essential in this instance. However, the situation surrounding the lawsuit introduces a level of uncertainty that is important for users to consider when interpreting the financial statements. By adding an emphasis-of-matter paragraph, the auditor effectively highlights this uncertainty without altering the overall opinion on the financial statements. In contrast, a disclaimer of opinion would be inappropriate here since the auditor is still able to form an opinion on the financial statements despite the uncertainty regarding the lawsuit. A qualified opinion would also not be suitable, as there is no definitive evidence suggesting that the financial statements are materially misstated due to the lawsuit. Therefore, the best approach is the unmodified opinion with an emphasis-of-matter paragraph, as it balances the need to affirm the integrity of the financial statements while drawing attention to the important