Several Months After an Unqualified Audit Report Was Issued,the Auditor

question 123

Multiple Choice

Several months after an unqualified audit report was issued,the auditor discovers the financial statements were materially misstated.The client's CEO agrees that there are misstatements,but refuses to correct them.She claims that "confidentiality" prevents the CPA from informing anyone.Which of the following statements is correct?

• A)The CEO is correct and the auditor must maintain confidentiality.
• B)The CEO is incorrect,but since the audit report has been issued,it is too late to correct the report.
• C)The CEO is correct,but to be ethically correct,the auditor should violate the confidentiality rule and disclose the error.
• D)The CEO is incorrect,and the auditor has an obligation to issue a revised audit report,even if the CEO will not correct the financial statements.

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Definitions:

Semi-annually

Occurring twice a year.

Effective Annual Yield

Annualized interest rate on a security computed using compound interest techniques.

Yield Curve

A graph that shows the relationship between the interest rates and the maturity dates of debt securities issued by the same issuer.

Liquidity Premiums

Additional yield that investors require to hold securities with lower liquidity, compensating them for the higher cost and difficulty of trading such securities.