An Auditor's Client Has Violated a Minor Requirement of Its

question 21

Multiple Choice

An auditor's client has violated a minor requirement of its bond indenture that could result in the trustee requiring immediate payment of the principal amount due.The client refuses to seek a waiver from the bond trustee.Request for immediate payment is not considered likely.Under these circumstances,the auditor must

• A) Require classification of bonds payable as a current liability.
• B) Contact the bond trustee directly.
• C) Disclose the situation in the auditor's report.
• D) Obtain an opinion from the company's attorney as to the likelihood of the trustee's enforcement of the requirement.

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Definitions:

Cost of Equity

The return that shareholders require for investing in a company’s equity.

Return on Assets

A financial ratio that indicates how profitable a company is relative to its total assets by dividing net income by total assets.

Return on Debt

A measure of how much profit a company generates for every dollar of debt, indicating the efficiency of using borrowed funds.

Total Equity

The net value of a company, determined by subtracting total liabilities from total assets.