The following questions relate to circumstances resulting in departure from the auditor's standard report. Select the best response.

a. The management of Stanley Corporation has decided not to account for a material transaction in accordance with the provisions of a recent statement of the FASB. They have set forth their reasons in note "B" to the financial statements which clearly demonstrates that due to unusual circumstances the financial statements would otherwise have been misleading. The auditor's report will probably contain a (an)

1. Consistency explanatory paragraph and a reference to note "B."

2. Unqualified opinion and an explanatory paragraph.

3. Adverse opinion and an explanatory paragraph.

4. Qualified opinion and an explanatory paragraph.

b. An auditor includes an explanatory paragraph in an otherwise unqualified report in order to emphasize that the entity being reported upon is a subsidiary of another business enterprise. The inclusion of this paragraph 1. Is appropriate and would not negate the unqualified opinion. 2 Is considered a qualification of the report. 3 Is a violation of generally accepted reporting standards if this information is disclosed in footnotes to the financial statements. 4 Necessitates a revision of the opinion paragraph to include the phrase "with the foregoing explanation."

c. Under which of the following set of circumstances might an auditor disclaim an opinion?

1. The financial statements contain a departure from generally accepted account- ing principles, the effect of which is material.

2. The principal auditor decides to make reference to the report of another auditor who audited a subsidiary.

3. There has been a material change between periods in the method of the application of accounting principles.

4. There are significant uncertainties affecting the financial statements.