Question

After an auditor has issued an audit report on a nonpublic entity, there is no obligation to make any further audit tests or inquiries with respect to the audited financial statements covered by that report unless ________?

1) new information comes to the auditor's attention concerning an event that occurred prior to the date of the auditor's report that may have affected the auditor's report.
2) material adverse events occur after the date of the auditor's report.
3) final determination or resolution was made on matters that had resulted in a qualification in the auditor's report.
4) final determination or resolution was made of a contingency that had been disclosed in the financial statements and no liability arose from the resolution.

Answer 1

After issuing an audit report on a nonpublic entity, further audit tests or inquiries may not be necessary, except in cases where a contingency disclosed in the financial statements is finally determined or resolved.

Step-by-step explanation:

After an auditor has issued an audit report on a nonpublic entity, there is generally no obligation to perform further audit tests or inquiries with respect to the audited financial statements covered by that report. This is because the audit report is meant to provide assurance that the financial statements present a true and fair view of the entity's financial position. However, there is one exception to this general rule.

If a contingency has been disclosed in the financial statements and a final determination or resolution is made, the auditor may need to perform additional audit procedures. This is because the outcome of the contingency may have a significant impact on the financial statements. If no liability arises from the resolution of the contingency, the auditor would need to substantiate this and ensure that the financial statements are still accurate and reliable.

For example, if a company has a pending lawsuit and discloses it in their financial statements, the auditor may issue an audit report without further procedures if the lawsuit is still ongoing. However, if the lawsuit is subsequently resolved and no liability arises from it, the auditor would need to perform additional tests to confirm that the financial statements are not materially affected by the resolution.