A major customer of an audit client suffers a fire just prior to completion of year-end fieldwork. The audit client believes that this event could have a significant direct effect on the financial report. The auditor should:
A) advise management to disclose the event in notes to the financial report.
B) disclose the event in the auditor's report.
C) withhold submission of the auditor's report until the extent of the direct effect on the financial report is known.
D) advise management to adjust the financial report.

Question

Quizplus · Accepted Answer

Advising management to disclose the event in notes to the financial report is the best choice. This will allow the users of the financial report to be aware of the event and its potential impact on the financial statements. Withholding the submission of the auditor's report or advising management to adjust the financial report is premature until the extent of the direct effect is known. Disclosing the event in the auditor's report is not necessary since it should be adequately disclosed in the notes to the financial report.

A Major Customer of an Audit Client Suffers a Fire