A client acquired 25% of its outstanding capital stock after year-end and prior to completion of the auditor's fieldwork.The auditor should
A)advise management to adjust the balance sheet to reflect the acquisition.
B)issue pro forma financial statements giving effect to the acquisition as if it had occurred at year-end.
C)advise management to disclose the acquisition in the notes to the financial statements.
D)disclose the acquisition in the opinion paragraph of the auditor's report.

Question

Quizplus · Accepted Answer

The auditor should advise management to disclose the acquisition in the notes to the financial statements. This is because the acquisition occurred after the year-end and after the auditor's fieldwork, and therefore, cannot be reflected in the financial statements or the auditor's report. However, it should be disclosed in the notes to provide users with relevant information about the company's investments. The other options are not appropriate in this situation. Adjusting the balance sheet or issuing pro forma financial statements would be misleading as they would not reflect the actual state of the company at year-end. Disclosing the acquisition in the opinion paragraph would also be incorrect as it is not a matter affecting the opinion.

A Client Acquired 25% of Its Outstanding Capital Stock After