Schmich and Schmich, CPAs in Minneapolis, Minnesota, has completed the audit of XYM Co. for the year ended December 31, 20X1. The financial statements for this nonpublic client are prepared following the cash basis of accounting.
Note 7 to the financial statements refers to an uncertainty due to material litigation against XYM related to an employee's charges of age discrimination that the employee believes result in his inability to secure a promotion.
Schmich and Schmich has determined that an unmodified opinion is appropriate, although the uncertainty should be referred to in the audit report.
Draft the opinion, basis of accounting, and emphasis-of-matter paragraphs of the audit report.