Question

When a subsequent event provides evidence about conditions that existed at the balance sheet date, what is the best course of action for the auditor to follow?

a. Assign a specialist.

b. Ensure that the financial statements are adjusted to reflect the information, including any necessary footnote disclosures.

c. Shop for an opinion that fits the desired type of event.

d. Provide management with a new engagement letter to document the terms of the revised arrangement

Answer 1

The auditor should ensure that the financial statements reflect the conditions existing at the balance sheet date based on information from a subsequent event.

Step-by-step explanation:

When a subsequent event provides evidence about conditions that existed at the balance sheet date, the best course of action for an auditor to follow is to ensure that the financial statements are adjusted to reflect the information, including any necessary footnote disclosures. This action is taken to ensure the financial statements present a true and fair view of the company's financial position at the balance sheet date. Adjustments may include recognizing liabilities that were actually present but not recorded, or adjusting asset values that have since been found to be incorrect due to the new information provided by the subsequent event. Proper disclosure in the footnotes is also critical for transparent communication with the financial statements' users.