Answered: If the auditors discover that the…

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN:9781305080577

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter16: Advanced Topics Concerning Complex Auditing Judgments

Section: Chapter Questions

Problem 38RSCQ

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Question

If the auditors discover that the carrying amount of a client’s investments is overstated because of a loss in value that is other than a temporary decline in market value, they should insist that
a. The approximate market value of the investments be shown in parentheses on the face of the balance sheet.
b. The investments be classified as long term for balance-sheet purposes with full disclosure in the footnotes.
c. The loss in value be recognized in the financial statements.
d. The equity section of the balance sheet separately show a charge equal to the amount of the loss.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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