A major customer of an entity suffers a fire after year-end, but just prior to completion of audit fieldwork. The entity believes that this event could have a significant direct effect on the financial statements. The auditor should:
A)advise management to disclose the event in the notes to the financial statements.
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 statements is known.
D)advise management to adjust the financial statements.

Question

Quizplus · Accepted Answer

The auditor should advise management to disclose the event in the notes to the financial statements, as this is the appropriate way to inform users of the financial statements about the possibility of a significant direct effect on the financial statements. Disclosing the event in the auditor's report or withholding submission of the auditor's report until the extent of the effect is known are not necessary or practical options. Advising management to adjust the financial statements would be premature before the extent of the effect is known.

A Major Customer of an Entity Suffers a Fire After