ExpertHard1 markMultiple Choice
CPA · Question 63 · Area IV: Forming Conclusions and Reporting
An auditor is performing a review of a nonissuer's financial statements. The auditor discovers that the entity has not accrued for a material vacation pay liability. Management refuses to correct the error. The error is material but not pervasive. Which of the following conclusions should the auditor express?
An auditor is performing a review of a nonissuer's financial statements. The auditor discovers that the entity has not accrued for a material vacation pay liability. Management refuses to correct the error. The error is material but not pervasive. Which of the following conclusions should the auditor express?
Answer options:
A.
Unmodified conclusion.
B.
Qualified conclusion.
C.
Adverse conclusion.
D.
Withdraw from the engagement.
How to approach this question
Review Reporting: GAAP Departure -> Material? Yes. Pervasive? No. -> Qualified Conclusion.
Full Answer
B.Qualified conclusion.✓ Correct
B
Under AR-C 90, if the accountant identifies a material departure from the financial reporting framework that is not pervasive, the accountant should express a qualified conclusion (using the phrase 'except for').
Common mistakes
Jumping to Adverse or Withdrawal for a single material error.
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