Question

After issuance of the auditor's report, the auditor has no obligation to make any further inquiries with respect to audited financial statements covered by an auditor's report unless

a. A lawsuit in which risk of loss was considered remote is resolved in the company's favor.
b. A development occurs that may affect the client's ability to continue as a going concern.
c. A material fraud is initiated by an employee after the report is issued.
d. Evidence of significant, non-arms-length, related party transactions that happened prior to year-end is discovered.

Answer 1

After issuance of the auditor's report, the auditor has no obligation to make any further inquiries unless significant, non-arms-length, related party transactions are discovered.

Step-by-step explanation:

After issuance of the auditor's report, the auditor has no obligation to make any further inquiries with respect to audited financial statements covered by an auditor's report unless evidence of significant, non-arms-length, related party transactions that happened prior to year-end is discovered.

This means that the auditor's responsibility is generally limited to the period covered by the audit and the financial statements presented in the report. However, if the auditor becomes aware of any significant transactions between parties that have a close relationship and are not conducted at arm's length, and these transactions occurred before the end of the fiscal year, then the auditor has an obligation to investigate further.

For example, if a company is owned by the CEO's relative and the company has engaged in transactions with that relative at a non-arms-length price, the auditor should inquire about and evaluate the nature of these transactions to assess their impact on the company's financial statements.