Question

TCO B) Morris, CPA suspects that a pervasive scheme of illegal bribes exists throughout the operations of Worldwide Import-Export, Inc., a new audit client. Morris notified the audit committee and Worldwide's legal counsel, but neither could assist Morris in determining whether the amounts involved were material to the financial statements or whether senior management was involved in the scheme. Under these circumstances, Morris should disclaim an opinion on the financial statements. express an adverse opinion on the financial statements. issue a special report regarding the illegal bribes. express an unmodified opinion with a separate explanatory paragraph.

Answer 1

Solution:-

Morris should disclaim an opinion on the financial statements.

Explanation:-

Morris should disclaim an opinion on the financial statements:-

Choice is correct. Since the CPA could not determine whether the suspected illegal bribes were material to the financial statements, or whether senior management was involved in the scheme, Morris should disclaim an opinion on the financial statements.

Express an adverse opinion on the financial statements:-

Choice is incorrect. An adverse opinion is inappropriate since the suspected material illegal bribes have not been proven, nor has any material effect on the financial statements been determined.

Issue a special report regarding the illegal bribes:-

Choice is incorrect. Special reports are not issued regarding illegal bribes.

Express an unmodified opinion with a separate explanatory paragraph:-

Choice is incorrect. An unmodified opinion with a separate explanatory paragraph is not appropriate if suspected material illegal bribes cannot be disproven.