A major customer of an audit client suffers a fire after year-end,but just prior to completion of audit field work.The audit client 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

This event is a non-adjusting subsequent event, meaning it occurred after the balance sheet date and does not provide additional information about conditions that existed at the balance sheet date. Therefore, it should be disclosed in the notes to the financial statements rather than adjusting the financial statements.

A Major Customer of an Audit Client Suffers a Fire