Which of the Following Events Occurring After the Issuance of an Auditor's

question 222

Multiple Choice

Which of the following events occurring after the issuance of an auditor's report most likely would cause the auditor to make further inquiries about the previously issued financial statements?

• A) An uninsured natural disaster occurs that may affect the entity's ability to continue as a going concern.
• B) A contingency is resolved that had been disclosed in the audited financial statements.
• C) New information is discovered concerning undisclosed lease transactions of the audited period.
• D) A subsidiary is sold that accounts for 25% of the entity's consolidated net income.

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Definitions:

Overhead Incurred

The actual overhead expenses that a company has experienced during a specific period, which may include costs related to rent, utilities, or administrative salaries.

Overhead Account

An accounting term that refers to all ongoing business expenses not directly tied to a specific product or service.

Applied Overhead

This is the process of assigning estimated overhead costs to specific cost objects based on a predetermined rate or basis such as labor hours or machine hours.

Underapplied Overhead

A situation where the actual manufacturing overhead costs are higher than the overhead costs allocated to products.