Final answer:
The best action for the auditor when a subsequent event indicates conditions not present at the balance sheet date is to include necessary footnote disclosures, rather than adjusting the financial statements or taking other inappropriate actions.
Step-by-step explanation:
When a subsequent event provides evidence about conditions that did not exist at the balance sheet date, the correct course of action for the auditor to follow is to ensure that any necessary footnote disclosures be included with the statements. This event is considered non-adjusting as it pertains to conditions that arose after the balance sheet date. Therefore, the financial statements themselves should not be adjusted. Instead, the auditor's responsibility is to assess the need for disclosures that inform the users of the financial statements about the nature and, if possible, the financial effect of the event. This allows users to make informed decisions based on the full context of the financial information presented.
It is also important to clarify that option c, to give an inappropriate opinion, is never a correct course of action for an auditor. Auditors must always act with professionalism and integrity, providing a fair and accurate opinion based on the evidence gathered during their audit. Moreover, option d, providing management with a new engagement letter, is not related to the handling of subsequent events and is not a necessary action in response to such events.