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

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Prepare for the Auditing and Attestation CPA Exam. Test your skills with multiple choice questions and comprehensive explanations. Ace your CPA exam!

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In what scenario does the disclosure of a significant uncertainty enhance the auditor's report?

  1. When the uncertainty is immaterial.

  2. When there is potential for future gain.

  3. When management refuses to cooperate.

  4. When the uncertainty is related to going concern issues.

The correct answer is: When the uncertainty is related to going concern issues.

The disclosure of a significant uncertainty enhances the auditor's report when the uncertainty is related to going concern issues because it directly impacts the ability of the business to continue operating in the foreseeable future. In situations where there are doubts about an entity's ability to continue as a going concern, it is crucial for the auditor to highlight this uncertainty in their report. This acknowledgment serves to inform users of the financial statements about potential risks that could affect the entity’s viability. Effective communication of going concern uncertainties can lead stakeholders to make informed decisions about investments, lending, and other engagements with the entity. It is a critical area of focus because the consequences of not addressing these issues can be substantial, potentially leading to financial loss for investors and creditors. The other scenarios provided do not warrant the same level of disclosure because they do not directly relate to the fundamental ability of the company to continue operating. For instance, if the uncertainty is immaterial, it would not impact the financial statements significantly enough to require special attention from users. Similarly, potential for future gain, while it presents opportunities, does not create a risk to ongoing operations, and lack of management cooperation might affect the audit process but does not inherently necessitate a significant uncertainty disclosure in the report.