Which of the following events occurring after the issuance of an auditors report most likely would cause the auditor to make further inquiries?

Last Updated on February 2, 2022 by Admin 3

• AUD CPA : All Parts

• A technological development that could affect the entity’s future ability to continue as a going concern.
• The discovery of information regarding a contingency that existed before the financial statements were issued. 
• The entity’s sale of a subsidiary that accounts for 30% of the entity’s consolidated sales.
• The final resolution of a lawsuit explained in a separate paragraph of the auditor’s report.

Explanation:
Choice “B” is correct. With respect to events occurring after the issuance of an auditor’s report, the auditor is only responsible for information that existed at the audit report date.
Choice “A” is incorrect. Since the information did not exist at the report date, the auditor has no obligation to make any further inquiry.
Choice “C” is incorrect. Since the information did not exist at the report date, the auditor has no obligation to make any further inquiry.
Choice “D” is incorrect. Since the information did not exist at the report date, the auditor has no obligation to make any further inquiry.

• AUD CPA : All Parts

Last Updated on February 2, 2022 by Admin 3

• AUD CPA : All Parts

• A lawsuit is resolved that is explained in a separate paragraph of the prior-year’s auditor’s report.
• New information is discovered concerning undisclosed related party transactions of the prior year. 
• A technological development occurs that affects the entity’s ability to continue as a going concern.
• The entity sells a subsidiary that accounts for 35% of the entity’s consolidated sales.

Explanation:
Choice “B” is correct. If an auditor becomes aware of material information that existed at the date of the auditor’s report, and which would have affected that report, the auditor needs to take appropriate action. Since related party transactions should be disclosed in the financial statements, it is likely that the auditor would need to make further inquiries to determine whether the lack of disclosure will affect the previously issued report.
Choice “A” is incorrect. Resolution of a lawsuit that was disclosed in the prior year’s audit report would not be likely to affect the audit report, as auditors are not required to update their reports for events occurring after the fact.
Choice “C” is incorrect. A technological development that affects the entity’s ability to continue as a going concern would not be likely to affect the previous year’s audit report, as auditors are not required to update their reports for events occurring after the fact.
Choice “D” is incorrect. Sale of a subsidiary would not be likely to affect the previous year’s audit report, as auditors are not required to update their reports for events occurring after the fact.

• AUD CPA : All Parts

Which of the following events occurring after the issuance of an auditor’s report most likely would cause the auditor to make further inquiries about the previously issued financial statements?
A. An uninsured natural disaster occurs that may affect the entity’s ability to continue as a going concern.
B. A contingency is resolved that had been disclosed in the audited financial statements.
C. New information is discovered concerning undisclosed lease transactions of the audited period.
D. A subsidiary is sold that accounts for 25% of the entity’s consolidated net income.