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

What should an auditor do when a client has disclosed a material uncertainty?

1. Ignore it in the audit report.

2. Issue a modified opinion.

3. Emphasize it in a separate paragraph.

4. State it's irrelevant to the financial statements.

The correct answer is: Emphasize it in a separate paragraph.

When a client discloses a material uncertainty, the appropriate action for an auditor is to emphasize it in a separate paragraph in the audit report. This practice is crucial because it highlights the uncertainty to the financial statement users without modifying the overall opinion on the financial statements. This emphasis serves to inform users that there is a significant risk that events may occur that could affect the entity's ability to continue as a going concern or that could impact the valuation of assets and liabilities. By including this emphasis paragraph, the auditor is providing additional context and clarity about the judgment made regarding the financial statements, allowing users to make more informed decisions based on the disclosed risks. Other choices, such as ignoring the uncertainty or stating it is irrelevant, do not align with the auditor's responsibility to provide a fair presentation of the financial statements and to disclose significant risks that could influence users' understanding. Issuing a modified opinion would typically be reserved for situations where the financial statements do not present a true and fair view, which is not the case if the uncertainty has been adequately disclosed.