After an Audit Report Containing an Unqualified Opinion on a Nonpublic

question 72

Multiple Choice

After an audit report containing an unqualified opinion on a nonpublic entity's financial statements is issued, the auditor learns that the entity has decided to sell the shares of a subsidiary that accounts for 30 percent of its revenue and 25 percent of its net income. The auditor should:

• A)determine whether the information is reliable and, if it is determined to be reliable, request that revised financial statements be issued.
• B)notify the entity that the auditor's report may no longer be associated with the financial statements.
• C)describe the effects of this subsequently discovered information in communications with persons known to be relying on the financial statements.
• D)take no action because the auditor has no obligation to make any further inquiries.

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Definitions:

Exchange Loss

A loss resulting from holding foreign currencies that depreciate against the home currency.

Forward Contract

An agreement to purchase or sell an asset at a predetermined future date and price, often used as a hedging instrument against price fluctuations.

Recognition

The process in accounting where certain transactions are recorded in the financial statements of a reporting period.

Discount

A reduction applied to the nominal price or face value of something for promotional purposes, or to reflect current market values.