A Major Customer of an Audit Client Suffers a Fire

question 54

Multiple Choice

A major customer of an audit client suffers a fire after year-end,but just prior to completion of audit field work.The audit client believes that this event could have a significant direct effect on the financial statements.The auditor should

• A) Advise management to disclose the event in the notes to the financial statements.
• 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 statements is known.
• D) Advise management to adjust the financial statements.

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Definitions:

Inventory Costs

Expenses associated with holding and managing goods in stock, including warehousing and insurance costs.

Personal Selling

A method of sales where businesses use individuals to sell the product after meeting face-to-face with the customer.

Economies of Scale

Refers to the cost advantages that enterprises obtain due to their scale of operation, leading to a reduced cost per unit.

Economies of Scope

Cost advantages that result from a company offering a range of products rather than specializing in just one.