An auditor is performing a review of a nonissuer's financial statements. The auditor discovers that the entity has not accrued for a material vacation pay liability. Management refuses to correct the error. The error is material but not pervasive. Which of the following conclusions should the auditor express?

Answer options:

Unmodified conclusion.

Qualified conclusion.

Adverse conclusion.

Withdraw from the engagement.

How to approach this question

Review Reporting: GAAP Departure -> Material? Yes. Pervasive? No. -> Qualified Conclusion.

Full Answer

B.Qualified conclusion.✓ Correct

Under AR-C 90, if the accountant identifies a material departure from the financial reporting framework that is not pervasive, the accountant should express a qualified conclusion (using the phrase 'except for').

Common mistakes

Jumping to Adverse or Withdrawal for a single material error.

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