The Audit Firm Issues an Audit Report for Its Client

question 149

Multiple Choice

The audit firm issues an audit report for its client. The auditors have no obligation to make further inquiries with respect to the client's audited financial statements unless

• A) a development occurs that may affect the company's long-term viability as a company.
• B) final resolution was made on disclosed contingency for which no liability needed to be accrued.
• C) new information comes to the auditor's attention concerning an event that occurred prior to the date of the audit report that, if known, would have impacted the audit opinion.
• D) a lawsuit, in which the risk of loss was considered remote, was resolved in the company's favor.

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Definitions:

Post Hoc, Ergo Propter Hoc

Literally, “after this (in time), therefore because of this.” A common error made in thinking about causation: If Event A happens before Event B, it is not necessarily true that A caused B.

Fallacy

A flawed argument that uses poor reasoning or misrepresents evidence, often leading to incorrect conclusions.

Inductive Reasoning

A reasoning method that involves generalizing from a set of specific observations to reach a broader conclusion.

Rent Control Laws

Regulations that limit the amount landlords can charge for leasing property to ensure affordable housing for tenants.