An entity has violated a minor requirement of its bond indenture that could result in the trustee requiring immediate payment of the principal amount due.The entity refuses to seek a waiver from the bond trustee.Request for immediate payment is not considered likely.Under these circumstances,the auditor must
A) require classification of bonds payable as a current liability.
B) contact the bond trustee directly.
C) disclose the situation in the auditor's report.
D) obtain an opinion from the company's attorney as to the likelihood of the trustee's enforcement of the requirement.

Question

Quizplus · Accepted Answer

The auditor must disclose the situation in the auditor's report as per the requirement of the GAAS (Generally Accepted Auditing Standards) and GAAP (Generally Accepted Accounting Principles). This would ensure transparency and provide the stakeholders with relevant information to make informed decisions. Option A is not appropriate as it is not necessary to classify the bonds payable as current liability unless there are specific reasons to do so. Option B is not the best choice as it is not the auditor's responsibility to contact the bond trustee directly, and doing so could potentially interfere with the entity's relationship with the trustee. Option D is also not appropriate as obtaining an opinion from the company's attorney would not be sufficient evidence and would not provide conclusive evidence of the likelihood of the trustee's enforcement.

An Entity Has Violated a Minor Requirement of Its Bond