Question

On February 25, a CPA issued an auditor's report expressing an unqualified opinion on financial statements for the year ended January 31. On March 2, the CPA learned that, on February 11, the entity incurred a material loss on an uncollectible trade receivable as a result of the ongoing deterioration of the financial condition of the entity's principal customer, which finally led to the customer's bankruptcy. Management then refused to adjust the financial statements for this subsequent event. The CPA determined that the information is reliable and that there are creditors currently relying on the financial statements. The CPA's next course of action most likely would be to

a. Notify the entity's creditors that the financial statements and the related auditor's report should no longer be relied upon.
b. Notify each member of the entity's board of directors about management's refusal to adjust the financial statements.
c. Issue revised financial statements and distribute them to each creditor known to be relying on the financial statements.
d. Issue a revised auditor's report and distribute it to each creditor known to be relying on the financial statements.

Answer 1

The CPA's next course of action would be to issue a revised auditor's report and distribute it to each creditor known to be relying on the financial statements.

Step-by-step explanation:

The CPA's next course of action most likely would be to issue a revised auditor's report and distribute it to each creditor known to be relying on the financial statements.

In this scenario, the CPA learned about a subsequent event that had a material impact on the financial statements after issuing the unqualified opinion. Even though management refused to adjust the financial statements, the CPA has determined that the information is reliable and there are creditors relying on the financial statements. Therefore, the most appropriate action for the CPA is to issue a revised auditor's report to inform the creditors about the new information.

This ensures that the creditors are provided with updated and accurate information, allowing them to make informed decisions based on the revised financial statements.