Final answer:
An auditor would most likely obtain a letter from the entity's attorney describing any pending litigation, unasserted claims, and loss contingencies (option b) to obtain evidence about an entity's subsequent events. This procedure is specifically targeted at identifying events that could have a significant effect on the financial statements and is crucial for the subsequent events assessment.
Step-by-step explanation:
To ascertain an auditor's most likely course of action for obtaining evidence about an entity's subsequent events, it's important to understand the nature of such events and their implications for the financial statements. Subsequent events are events that occur after the balance sheet date but before the financial statements are issued or available to be issued. These could affect the financial statements either by providing more information about conditions that existed at the balance sheet date or by indicating new conditions that have arisen.
Option (a), which suggests reconciling bank activity for the month after the balance sheet date with cash activity reflected in the accounting records, is a commonly performed procedure. This reconciliation helps to identify any transactions that may affect the financial statements and have occurred after the reporting period but are relevant to the balance sheet date.
Option (b), obtaining a letter from the entity's attorney about pending litigation, unasserted claims, and loss contingencies, is another standard procedure known as a legal letter. This is crucial for identifying any potential liabilities that could affect the company's financial position.
Option (c), the review of the treasurer's monthly reports on temporary investments, helps identify any significant changes in investments that might require adjustment or disclosure in the financial statements.
Option (d), which involves examining purchase invoices and receiving reports after the inventory date, is useful for verifying the cutoff procedures and ensuring the year-end inventory is accurately recorded.
While all these procedures could provide evidence regarding subsequent events, the correct option that an auditor is most likely to perform is option (b): Obtain a letter from the entity's attorney describing any pending litigation, unasserted claims, and loss contingencies. This option is very specifically targeted at identifying events that could have a significant effect on the financial statements and is a key procedure in assessing subsequent events.