Final answer:
The auditor reviews the renewal of a note payable soon after the balance sheet date to verify the proper recording and disclosure of liabilities, assessing the terms and ensuring accurate financial reporting related to the company's liquidity and stability.
Step-by-step explanation:
An auditor's purpose in reviewing the renewal of a note payable shortly after the balance sheet date is primarily to obtain evidence concerning management's assertions about the company's liabilities and subsequent events. This involves assessing whether the liability is stated at the appropriate amount, terms of the renewal, and whether any new conditions have been met subsequent to the original note's issuance.
Auditing standards require that auditors evaluate the accuracy and completeness of liabilities at year-end. This includes verifying that all liabilities, like notes payable, are properly recorded, including any changes that occur shortly after the balance sheet date that could affect the financial statements. The auditor's review of note payable renewals provides evidence on whether the renewal was planned or whether it represents a new borrowing, and can impact the disclosure of the company's liquidity and going concern considerations.