Question

Which of the following events occurring after the issuance of an entity's financial statements and the auditor's report most likely would cause the auditor to make further inquiries about the previously issued financial statements?

1) An uninsured natural disaster occurs that may affect the entity's ability to continue as a going concern.
2) A contingency is resolved that had been disclosed in the audited financial statements.
3) New information is discovered concerning undisclosed lease transactions in the audited period.
4) A subsidiary that accounts for 25 percent of the entity's consolidated net income is sold.

Answer 1

3) New information is discovered concerning undisclosed lease transactions in the audited period

The auditor would need to make further inquiries if new information is found about undisclosed lease transactions, as this affects the accuracy of the previously issued financial statements and could indicate significant misstatements.

Step-by-step explanation:

The event that most likely would cause the auditor to make further inquiries about the previously issued financial statements is the discovery of new information concerning undisclosed lease transactions in the audited period.

This scenario directly relates to the accuracy and completeness of the financial statements that were audited and could indicate that there were transactions not accounted for which could materially affect the financial position or results of operations of the entity.

It raises concerns about potential financial shakiness and misstatements, which are critical for stakeholders who may face economic risks if the entity's financial health is not as was previously reported.

The event that is most likely to cause the auditor to make further inquiries about previously issued financial statements is

option 3) New information is discovered concerning undisclosed lease transactions in the audited period.

This is because undisclosed lease transactions can have a significant impact on the entity's financial statements and may require adjustments or additional disclosures.

The auditor would want to investigate this further to ensure the accuracy and completeness of the financial statements.