A Major Customer of an Audit Client Suffers a Fire

question 21

Multiple Choice

A major customer of an audit client suffers a fire just after year-end and the audit client believes that this event could have a significant direct effect on the financial report.The auditor should:

• A)advise management to disclose the event in notes to the financial report.
• B)disclose the event in the auditor's report.
• C)withhold submission of the auditor's report until the extent of the direct effect on the financial report is known.
• D)advise management to adjust the financial report.

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Definitions:

Differential Cost

The difference in cost between two alternative decisions or changes in output levels.

Sunk Cost

Sunk cost represents money already spent and permanently lost, which cannot be recovered and should not influence future financial decisions.

Differential Cost

Refers to the difference in total cost that will result from selecting one option over another in decision-making situations.

Differential Revenue

The difference in revenue generated under two different scenarios or courses of action.