Final answer:
Auditors must be vigilant for events that occur between the financial statement date and the auditor's report date. These events can have significant implications for the financial statements, requiring adjustment or additional disclosures. The financial crisis of 2008-2009 highlights the importance of such vigilance as critics questioned regulators' foresight regarding bank stability.
Step-by-step explanation:
Auditors should be alert to subsequent events that may occur between the date of the financial statements and the date of the auditor's report. These events can be significant in the context of the audited financial statements because they may provide additional evidence relating to conditions that existed at the balance sheet date, affecting the assessments and conclusions drawn from the audit.
Auditors assess the impact of these subsequent events to determine if the financial statements require adjustment or if additional disclosure is necessary in the notes to the financial statements. Criticism has been levied against regulators following instances such as the U.S. recession of 2008-2009, when many banks faced financial issues.
Questions were raised about why regulators, who are required to act promptly when a problem is identified, did not foresee the financial instability of the banks before substantial losses accrued. While auditors are not bank regulators, this historical context emphasizes the importance of being vigilant about identifying significant events that could affect the financial statements they audit.