Which of the following is the best example of a Type I subsequent event?
A)A related-party transaction occurs during fieldwork.
B)The company defaults on its line-of-credit with the bank subsequent to year end but previous to the release of the audit opinion.
C)Litigation that was accrued as a liability in the year under audit is settled subsequent to year-end for an amount materially in excess of estimates.
D)The company initiates an initial public offering subsequent to year-end.

Question

Quizplus · Accepted Answer

A Type I subsequent event is an event that occurred after year-end but before the date of the auditor's report and provides additional evidence about conditions that existed at year-end. Settlement of litigation for a material amount in excess of estimates previously accrued as a liability meets this criteria. The other options are not Type I subsequent events.

Which of the Following Is the Best Example of a Type