Question

In the course of the audit of financial statements for the purpose of expressing an opinion thereon, the auditors will normally prepare a schedule of unadjusted differences for which the auditors did not propose adjustment when they were identified. What is the primary purpose served by this schedule?

A. To point out to the responsible client officials the errors made by various company personnel.
B. To summarize the adjustments that must be made before the company can prepare and submit its federal tax return.
C. To identify the potential financial statement effects of misstatement or disputed items that were considered immaterial when discovered.
D. To summarize the misstatements made by the company so that corrections can be made after the audited financial statements are released.

Answer 1

The schedule of unadjusted differences is intended to identify potential financial statement effects of misstatements that were considered immaterial individually but might be material in aggregate. It is a tool for both auditor and client communication and record-keeping.

Step-by-step explanation:

The primary purpose of the schedule of unadjusted differences, which auditors prepare during the audit of financial statements, is C. To identify the potential financial statement effects of misstatement or disputed items that were considered immaterial when discovered. These differences are typically items that the auditors have found to be errors or misstatements during the audit process but have deemed immaterial to the overall financial statements. This schedule provides a record of such items and helps in the consideration of whether the aggregate effect of unadjusted differences could potentially be material to the financial statements. Additionally, this schedule serves as a communication tool between the auditor and the client, detailing items that were not adjusted but may warrant future attention.