Question

The auditor has completed her assessment of subsequent events. The proper accounting for subsequent events that have a direct effect on the financial statements is to

A) adjust the financial statements for the year under audit.
B) disclose in the notes to financial statement the amount of the adjustment.
C) duly note in the audit workpapers that next year's financial statements need to be adjusted.
D) make no adjustment of the financial statements for the year under audit.

Answer 1

The proper accounting for subsequent events that have a direct effect on the financial statements is to adjust the financial statements for the year under audit.

Step-by-step explanation:

The proper accounting for subsequent events that have a direct effect on the financial statements is to adjust the financial statements for the year under audit.

Subsequent events refer to events that occur after the end of the reporting period but before the financial statements are issued or available to be issued.

These events may require adjustments to the financial statements to reflect their impact on the financial position, results of operations, or cash flows of the company.