Assume that you determine, through subsequent discussions with the attorney, that a more likely estimate of the range of loss falls between $65,000 to $100,000. What type of financial statement disclosure do you believe is required in that case?

Question

In preparation for tomorrow’s meeting with the partner and likely subsequent meeting with Murchison management, develop recommended responses to the following possible scenarios. In developing your responses, assume that each scenario is independent of the others:

Answer 1

In this scenario, both management and the auditor would likely conclude that the uncertainty is immaterial to the financial statements of Murchison Technologies. The range of loss of $65,000 to $100,000 falls below the conservative rule of thumb performance materiality estimate described in the solution to question 6.a. In this situation, no footnote disclosure would be required given the lack of materiality. Assuming there are no other material adjusting entries, the auditor would issue a standard,
unqualified report.