[thehip41]

Gleim software:

The auditor learned of the following situations after issuing the audit report on Feb 6. Each is important to users of the financial statements. For which one does the auditor have responsibility for disclosure of the newly discovered facts?

KEY word, DISCLOSURE

a. A conflict of interest involving credit officers and a principal company supplier that existed during the audit year was discovered on March 3rd.

b. A major lawsuit against the company, which was the basis for a modified report, was settled on unfavorable terms on March 1.

c. On Feb 16, a fire destroyed the principal manufacturing plant

d. The client undertook merger negotiations on March 16 and concluded a merger agreement on April 1.

I picked C. This is why it’s wrong: The auditor need not apply any other audit procedures or update the report for occurances after the subsequent events period.

wait, what? Where does it saying anything about more audit procedures in the question? Isn’t it asking me what I’m supposed to be disclosing?

Correct answer A The auditor has a responsibility after the issuance of the report for events that come to his attention for which he would have extended procedures or modified the report. A conflict of interest situation would have been examined by the auditor had he known about it during the audit process. Consequently, the auditor has a responsibility to determine the nature of the event and whether it might affect the fairness of the financial statements and the propriety of the report.

Just don’t get it. Someone explain this to me please.

FAR - 83
AUD - 73 92
BEC - 83
REG - 88

Licensed CPA in the state of Michigan

[Anonymous]

I got this same question and answer that you did. The report was issued on feb 6 and the fire was feb 16. The subsequent event took place after the audit report so the disclosure for the previous year's audit report is not needed. While the answer in A may have been discovered on March 3, it happened during the year under audit.

[Anonymous]

I got this same question and answer that you did. The report was issued on feb 6 and the fire was feb 16. The subsequent event took place after the audit report so the disclosure for the previous year's audit report is not needed. While the answer in A may have been discovered on March 3, it happened during the year under audit.

[thehip41]

That makes a little more sense.

I know that a company has to disclose certain things after the balance sheet date, but it doesn't have to modify the financial statements.

ex: A fire destroys a customers warehouse and they go out of business, so your AR is now bad debt. It's disclosed, but new financials are not needed.

My question is:

Is the audit report date the cut off? Like no matter what they find out after the report date, no disclosure is needed for events that happen AFTER the balance sheet date?

FAR - 83
AUD - 73 92
BEC - 83
REG - 88

Licensed CPA in the state of Michigan

[thehip41]

That makes a little more sense.

I know that a company has to disclose certain things after the balance sheet date, but it doesn't have to modify the financial statements.

ex: A fire destroys a customers warehouse and they go out of business, so your AR is now bad debt. It's disclosed, but new financials are not needed.

My question is:

Is the audit report date the cut off? Like no matter what they find out after the report date, no disclosure is needed for events that happen AFTER the balance sheet date?

FAR - 83
AUD - 73 92
BEC - 83
REG - 88

Licensed CPA in the state of Michigan

[Anonymous]

Yes, the audit report is the cutoff. Anything that happens after the audit report, the auditor is not responsible for. And if the auditor will reissue the audit report for disclosure, they are only responsible for the item they are disclosing, not anything that happened between the two report dates.

[Anonymous]

Yes, the audit report is the cutoff. Anything that happens after the audit report, the auditor is not responsible for. And if the auditor will reissue the audit report for disclosure, they are only responsible for the item they are disclosing, not anything that happened between the two report dates.

[barelystayingsane]

“Is the audit report date the cut off? Like no matter what they find out after the report date, no disclosure is needed for events that happen AFTER the balance sheet date?”

Auditors have no ACTIVE responsibility to watch out for subsequent events after the report date. However, if anything comes to their attention, they should evaluate the circumstances. And like Clarissa said, if something does change, just dual date it.

[barelystayingsane]

“Is the audit report date the cut off? Like no matter what they find out after the report date, no disclosure is needed for events that happen AFTER the balance sheet date?”

Auditors have no ACTIVE responsibility to watch out for subsequent events after the report date. However, if anything comes to their attention, they should evaluate the circumstances. And like Clarissa said, if something does change, just dual date it.

[thehip41]

Thank you much. I vaguely remember this from grad school.

FAR - 83
AUD - 73 92
BEC - 83
REG - 88

Licensed CPA in the state of Michigan

[thehip41]

Thank you much. I vaguely remember this from grad school.

FAR - 83
AUD - 73 92
BEC - 83
REG - 88

Licensed CPA in the state of Michigan

[barelystayingsane]

Related question: let's say the fire destroyed the plant before the report date. That would probably be worthy of disclosure, right? Especially if it impaired their operations?

[barelystayingsane]

Related question: let's say the fire destroyed the plant before the report date. That would probably be worthy of disclosure, right? Especially if it impaired their operations?

[Anonymous]

Yep, say the fire happened on Feb 2, then yes disclosure would be necessary.

[Anonymous]

Yep, say the fire happened on Feb 2, then yes disclosure would be necessary.

[mtaylo24]

You gotta think subsequent events vs subsequent discovery of facts (existed during the engagement, could have caused a different report) . A.) Is a discovery of facts B.) Is a subsequent event. Double check the last sentence of the question.

CPA (2017)

REG:  75

BEC:  76

FAR:  77

AUD: 78

 

CMA (2019)

P1: 380

P2: 360

AUD - 1st - 60 (12/12), 61 (2/13), 61 (8/13), 78! (11/15)
REG - 55 (2/16) 69 (5/16) Retake(8/16)
BEC - 71(5/16) Retake (9/16)
FAR - (8/16)

[Author]

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