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

What would most likely lead an auditor to issue a qualified opinion regarding pending litigation?

1. A lack of insurance coverage for potential losses.

2. No experience with litigation.

3. Inability to estimate the amount of loss.

4. Lack of sufficient evidence.

The correct answer is: Lack of sufficient evidence.

The issuance of a qualified opinion hinges on the auditor's assessment of whether they have obtained sufficient appropriate evidence to support their audit opinion. In the context of pending litigation, if the auditor lacks sufficient evidence regarding the potential outcomes or financial impacts associated with the litigation, this uncertainty could lead them to conclude that the financial statements may not be fairly presented in accordance with the applicable financial reporting framework. When there is a lack of sufficient evidence, it implies that the auditor cannot reliably ascertain the likelihood of the loss or the amount that could potentially be incurred. This situation does not allow the auditor to form a complete opinion, hence leading to a qualification stating that it is unable to determine the nature of the contingent liability appropriately. In contrast, while a lack of insurance coverage could raise concerns about risk and financial exposure, it is not necessarily a reason for a qualified opinion from an audit perspective. The auditor could still adequately assess the potential impact of litigation with the right information. Similarly, no experience with litigation would not directly lead to a qualified opinion; rather, it may indicate a need for further consultation or research. Inability to estimate the amount of loss could indeed raise issues, however, if sufficient evidence about the nature of the litigation and its potential impact has been obtained. In