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.

Question

Quizplus · Accepted Answer

The auditor's responsibility in this scenario is to inform the client (Company A) that the regulators should be notified that the audit report can no longer be relied upon due to the material subsequent event (the bankruptcy of a significant customer). This is because the event affects the financial statements' reliability post-issuance.

Company a Hired Q to Perform Its Year-End Audit