QUESTION: 150
An auditor's report that refers to the use of an accounting principle at variance with generally
accepted accounting principles contains the words, "In our opinion, with the foregoing
Explanation: , the financial statements referred to above present fairly...." This is considered
an:

A. Adverse opinion.
B. "Except for" qualified opinion.
C. Unqualified opinion with an explanatory paragraph.
D. Example of inappropriate reporting.

Answer(s): D
Explanation:
Choice "d" is correct. "In our opinion, with the foregoing Explanation, the FS referred to above
present fairly" is an example of inappropriate reporting. When an auditor's report refers to the
use of an accounting principle at variance with GAAP, the words, "in our opinion, except for the
effects of the matters discussed in the preceding paragraph, the FS referred to above present
fairly,..." should be used. Choice "a" is incorrect. An adverse opinion would include the phrase,
"...do not present fairly..." Choice "b" is incorrect. A qualified opinion would include the phrase,
"In our opinion, except for the [problem] discussed in the preceding paragraph,..."
Choice "c" is incorrect. An unqualified opinion would not include the phrase "with the foregoing
Explanation" in an explanatory paragraph.
QUESTION: 151
Management of Hil Company has decided not to account for a material transaction in
accordance with the provisions of an FASB Standard. In setting forth its reasons in a note to the
financial statements, management has clearly demonstrated that due to unusual circumstances
the financial statements presented in accordance with the FASB Standard would be misleading.
The auditor's report should include a separate explanatory paragraph and contain a(an):

A. "Except for" qualified opinion.
B. "Subject to" qualified opinion.
C. Adverse opinion.
D. Unqualified opinion.

Answer(s): D
Explanation:
Choice "d" is correct. In unusual circumstances, where the literal application of accounting
standards would make the FS misleading (e.g., new legislation or new business practices), the
proper accounting treatment is that which wil more fairly present the FS. In such a case, the
auditor should express an unqualified opinion on the financial statements and include a
separate explanatory paragraph. Choice "a" is incorrect. Under the circumstances, the method
of accounting selected by the client is justified. There is no need for an "except for" qualification.
Choice "b" is incorrect. "Subject to" opinions are not acceptable under any circumstances.
Choice "c" is incorrect. An adverse opinion is not appropriate since the financial statements as
prepared by the client are fairly presented.
QUESTION: 152

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