Small and Tall,CPAs,completed the December 31,2012 audit of Big Company on February 10,2013.After the audit report release date,an outstanding lawsuit against Big Company was settled for materially more than recorded in the December 31,2012 financial statements.The amount recorded in the financial statements represented the best estimate of management and the company's attorneys at the time the audit was completed.Based on this new information,Small and Tall,CPAs should
A) Determine whether persons are currently relying on the auditors' reports.
B) Advise the client to make appropriate changes in the financial statements and reissue them.
C) Notify each member of the board of directors of Big Company.
D) Take no action because the event took place after the audit report release date.

Question

Quizplus · Accepted Answer

The event occurred after the audit report release date, so it is considered a subsequent event that does not require adjustment to the financial statements. The auditors are not required to take action as the financial statements were correct based on information available at the time of the audit.

Small and Tall,CPAs,completed the December 31,2012 Audit of Big Company