Question

Ambrose is auditing the financial statements of Mays (dated December 31, 2014). The date of the auditor's report is February 17, 2015, and the audit report release date is February 20, 2015. For which of the following matters would Ambrose have the least responsibility?

1) the obsolescence of inventory held on December 31, 2014, that was identified on January 20, 2015
2) a customer's deteriorating financial condition that was identified on February 19, 2015
3) a merger that was announced by Mays and known by Ambrose on February 12, 2015
4) A major loss due to a catastrophe that occurred and was known by Ambrose on March 1, 2015

Answer 1

Ambrose has the least responsibility for a major loss due to a catastrophe that occurred on March 1, 2015, as this event happened after the date of his audit report and the release date. Events occurring before these dates, such as inventory obsolescence, customer's financial condition, and a known merger, would need to be considered and likely included in his report.

Step-by-step explanation:

The responsibility of an auditor is to provide an opinion on the financial statements of a company being audited as of the balance sheet date and up until the date of the auditor's report. However, certain events or conditions that occur after the balance sheet date but before the date of the auditor's report may require consideration and work on the auditor's part as well. In this scenario, Ambrose would have the least responsibility for a major loss due to a catastrophe that occurred and was known by Ambrose on March 1, 2015, as this event happened after the date of the auditor's report and the audit report release date. In comparison, all other events occurred between the company's year-end and the auditor's report date or earlier, which Ambrose would need to consider in his audit work.

The obsolescence of inventory held on December 31, 2014, and identified on January 20, 2015, is a matter that occurred prior to the auditor's report date and should be considered by Ambrose as part of his audit.

A customer's deteriorating financial condition identified on February 19, 2015, is also a matter Ambrose should consider, as it falls before the audit report release date and may affect the receivables.

The merger that was announced by Mays and known by Ambrose on February 12, 2015, falls within Ambrose's responsibility to disclose in the financial statements if it materially affects the company's financial position.

Therefore, the correct answer is that Ambrose would have the least responsibility for the event described in option 4, the major loss due to a catastrophe that occurred after the completion of his audit work and the release of his report.