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

Under what circumstance would an auditor express an unmodified opinion without adding emphasis-of-matter paragraphs?

1. When supplementary information required by FASB is omitted.

2. When there are significant related party transactions.

3. When the client changes its method of computing depreciation.

4. When there's probable material loss due to uncertainty, adequately disclosed.

The correct answer is: When there's probable material loss due to uncertainty, adequately disclosed.

An auditor would express an unmodified opinion without adding emphasis-of-matter paragraphs when there is probable material loss due to uncertainty, as long as the uncertainty is adequately disclosed in the financial statements. An unmodified opinion indicates that the financial statements present a true and fair view of the entity's financial position and results of operations, following the applicable financial reporting framework. In this scenario, even though there is a probability of material loss due to uncertainty, proper disclosure means that the financial statements remain reliable and do not mislead the users. The auditor is satisfied that the included disclosures provide sufficient information regarding the uncertainty, and thus an emphasis-of-matter paragraph is not necessary. In contrast, the other situations suggest instances where additional considerations are warranted: - Omitting supplementary information required by FASB would lead to a modified opinion since it would result in a departure from the applicable financial reporting framework. - Significant related party transactions could raise concerns about the transparency and potential conflicts of interest, making it prudent for the auditor to highlight these transactions in an emphasis-of-matter paragraph. - A change in the method of computing depreciation indicates a significant change in accounting policy or estimates, which warrants scrutiny and also could necessitate an emphasis-of-matter paragraph to inform users of the change