CPA · Question 45 · Area III: Performing Procedures
Scenario: An auditor is auditing the financial statements of a nonissuer. The auditor discovers that the client has been sued for patent infringement. Management's legal counsel refuses to provide an estimate of the potential loss, stating only that the outcome is 'uncertain'. Management has disclosed the lawsuit in the notes but has not accrued a liability. <br/><br/>What is the auditor's responsibility?
Answer options:
Issue a qualified opinion due to the inability to estimate the loss.
Conclude that the disclosure is adequate if the likelihood of an unfavorable outcome is reasonably possible but not estimable.
Require management to accrue the minimum amount of the potential loss range.
Withdraw from the engagement due to scope limitation.
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