Question

An auditor's client has violated a minor requirement of its bond indenture that could result in the trustee requiring immediate payment of the principal amount due. The client refuses to seek a waiver from the bond trustee. Request for immediate payment is not considered likely. Under these circumstances, the auditor must

a. Require classification of bonds payable as a current liability.
b. Contact the bond trustee directly.
c. Disclose the situation in the auditor's report.
d. Obtain an opinion from the company's attorney as to the likelihood of the trustee's enforcement of the requirement.

Answer 1

The auditor must disclose the situation in the auditor's report.

Step-by-step explanation:

The correct answer is c. Disclose the situation in the auditor's report.

When an auditor's client violates a minor requirement of its bond indenture, it is important for the auditor to disclose this information in the auditor's report. This disclosure ensures transparency and provides relevant information to users of the financial statements.

Contacting the bond trustee directly or obtaining an opinion from the company's attorney may be appropriate steps in certain circumstances, but in this scenario, the auditor's main responsibility is to disclose the situation in the auditor's report.