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.

Question

Quizplus · Accepted Answer

The auditor should insist that the loss in value be recognized in the financial statements. This is because GAAP requires recognition of impairment losses when the carrying amount of an asset exceeds its fair value and the impairment is considered to be other than temporary. The recognition of the loss is necessary for the financial statements to provide a true and fair view of the client's financial position. Options A, B, and D do not address the issue of recognition of the loss in value.

If the Auditors Discover That the Carrying Amount of a Client's