Question

The audit procedures for the subsequent events review can be divided into two categories: procedures normally integrated as a part of the verification of year-end account balances, and (2) those performed specifically for the purpose of discovering subsequent events. Which of the following procedures is in the second category?

A) Correspond with attorneys.
B) Test the collectability of accounts receivable by reviewing subsequent period cash receipts.
C) Subsequent period sales and purchases transactions are examined to determine whether the cutoff is accurate.
D) Compare the subsequent-period purchase price of inventory with the recorded cost as a test of lower of cost or market valuation.

Answer 1

Corresponding with attorneys is an audit procedure in the second category, specifically performed for discovering subsequent events to identify events after the balance sheet date that may affect the financial statements.

Step-by-step explanation:

The audit procedures for the subsequent events review specifically performed for discovering subsequent events would include corresponding with attorneys. This procedure is utilized to identify whether there have been any events occurring after the balance sheet date that may affect the financial statements. This can include potential litigation, claims, or assessments that have arisen or have been settled after the period end, which could have a material impact on the financial statements and the auditor's report.