Auditing And Assurance Services
Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Chapter 24, Problem 20.3MCQ
To determine

Identify the option which is an example of an event occurring in the period between the end of the year being audited and the date of the auditor’s report that normally will not require disclosure in the financial statements or auditor’s report.

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An example of an event occurring in the period of the auditor’s field work subsequentto the end of the year being audited that normally will not require disclosure in thefinancial statements or auditor’s report is(1) serious damage to the company’s plant from a widespread flood.(2) issuance of a widely advertised capital stock issue with restrictive covenants.(3) settlement of a large liability for considerably less than the amount recorded.(4) decreased sales volume resulting from a general business recession
A company Hira Ltd. has been mis-reporting its financial statements since more than 10 years which none of the stakeholders noticed for years. When the situation of the Company went from bad to worse and it had no option but to declare it bankrupt, the company issued a press statement that there is disparity between actual and reported results due to accounting errors. The first question from shareholders of the Company was why the auditors had not spotted and corrected the fundamental accounting errors? The auditor of the Company, WCP partnership (one of the largest audit firm in the country), had compromised its independence by a large audit fee and also consultancy income worth several times the audit fee. Because Hira Ltd. was such an important client for WCP, it had knowingly signed off inaccurate accounts in order to protect the management of the Company. The investigation also found a number of significant internal control deficiencies including no effective management oversight…
As a result of analytical procedures, the auditor determines that the gross profitpercentage has declined from 30% in the preceding year to 20% in the current year.The auditor should(1) express a qualified opinion due to inability of the client company to continue asa going concern.(2) evaluate management’s performance in causing this decline.(3) require footnote disclosure.(4) consider the possibility of a misstatement in the financial statements.
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