Question

Which of the following statements is INCORRECT regarding subsequently discovered facts?

1) If management revises the financial statements, auditors do not need to perform audit procedures on the changes made by management.
2) If a revision of the financial statements is necessary, auditors should inquire of management as to how management will address the situation in the financial statements, either through adjustment and disclosure or only disclosure.
3) AU-C 560 and AS 2905 state the first step is to discuss the matter with the appropriate level of management and, if appropriate, those charged with governance.
4) Auditors must determine if the new information is reliable, material, and if it existed at the date of the auditor's report.

Answer 1

The statement that is incorrect regarding subsequently discovered facts is that if management revises the financial statements, auditors do not need to perform audit procedures on the changes made by management.

Step-by-step explanation:

The correct statement among the given options is: Option 1) If management revises the financial statements, auditors do not need to perform audit procedures on the changes made by management.

This statement is incorrect because if management revises the financial statements, auditors are required to perform audit procedures on the changes made by management. Auditors need to assess the nature and extent of the changes, as well as the impact on the financial statements.

This is in line with the Generally Accepted Auditing Standards (GAAS) and the International Standards on Auditing (ISA).