After the balance sheet date, but prior to the issuance of the audit report, the client suffers an uninsured loss of their inventory as a result of a fire. The amount of the loss is material. The auditor should
A) adjust the financial statements for the year under audit.
B) add a paragraph to the audit report.
C) advise the client to disclose the event in the notes to the financial statements.
D) advise the client to delay issuing the financial statements until the economic loss can be determined.

Question

Quizplus · Accepted Answer

The auditor should advise the client to disclose the event in the notes to the financial statements as it is a material loss. Adjusting the financial statements or delaying the issuance of the statements is not necessary. Adding a paragraph to the audit report may be appropriate if the disclosure is not made in the notes, but advising the client to make the disclosure first is the best course of action.

After the Balance Sheet Date, but Prior to the Issuance