A major customer of an audit client suffers a fire just after year-end and 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

The auditor should advise management to disclose the event in notes to the financial report as it is a material event that could have a significant direct effect on the financial report. This disclosure will provide transparency to the users of the financial report and help them make informed decisions. The auditor does not need to withhold submission of the auditor's report or advise management to adjust the financial report at this point as the extent of the direct effect is not known yet. The event does not need to be disclosed in the auditor's report unless the management fails to disclose it in the notes.

A Major Customer of an Audit Client Suffers a Fire