Company a Hired Q to Perform Its Year-End Audit

question 43

Multiple Choice

Company A hired Q to perform its year-end audit. Subsequent to year-end, A discovers that one of its customers, who owes Company A a material amount, has filed for bankruptcy protection. Assume that the financial statements and audit report have already been issued. Q should:

• A) recall the financial statements.
• B) inform regulators that the audit report can no longer be relied upon.
• C) inform the client that the regulators should be notified that the audit report can no longer be relied upon.
• D) reissue a revised audit report.

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Definitions:

Positive Economics

A branch of economics that focuses on objective analysis and the description of how the economy functions, as opposed to normative economics that involves value judgments.

Normative Economics

An area of economics that makes assessments of economic fairness or desired economic outcomes and aims of public policy.

Consequences

The outcomes or effects resulting from a particular action or set of conditions.

Negative Relationship

A relationship between two variables, X and Y, in which a decrease in X is associated with an increase in Y and an increase in X is associated with a decrease in Y.