When an Investigation of the Discovery of Facts Existing at the Report

question 28

Multiple Choice

When an investigation of the discovery of facts existing at the report date confirms the existence of the fact and the auditor believes the information is important to those relying or likely to rely on the financial statements, the auditor should immediately:

• A) take steps to prevent future reliance on the audit report.
• B) notify the SEC or other regulatory agency.
• C) notify the audit committee.
• D) resign from the engagement.
• E) take no action since the auditor is not responsible for such matters.

---

Definitions:

Accounts Receivable Turnover

A ratio that measures how effectively a company collects its receivables or the efficiency of its credit policies.

Working Capital

The difference between a company's current assets and current liabilities, indicating short-term financial health and operational efficiency.

Current Ratio

A liquidity ratio that measures a company's ability to cover its short-term obligations with its current assets.

Times Interest Earned

A ratio that assesses the risk that bondholders will not receive their interest payments or that interest payments will not be made if earnings decrease. The ratio is computed as income before income tax expense plus interest expense divided by interest expense.