If the auditor becomes aware of a material subsequent event and the financial statements are not amended, what may the auditor do?

If the auditor becomes aware of a material subsequent event and the financial statements are not amended, what may the auditor do?

• A. Reissue a modified audit report, seek legal advice or resign
• B. Issue an unmodified report
• C. Prepare new financial statements
• D. Issue a disclaimer of opinion

Answer: (A)

When a material event after the reporting period comes to light and management does not adjust the financial statements, the auditor must consider how this affects the financial statements and the audit report. Such a material subsequent event may require modification of the auditor’s opinion to reflect that the statements are not presented fairly in light of new information. If the client refuses to amend, the auditor may reissue the audit report with a modified opinion, or, if appropriate, seek legal advice to determine the proper course of action. In some cases, the auditor may also resign if the client will not allow a necessary modification or if continuing the engagement would be inappropriate. Preparing new financial statements is management’s task, not the auditor’s, and issuing an unmodified report would not be appropriate when a material subsequent event has not been disclosed. A disclaimer of opinion is a more extreme response tied to scope limitations rather than simply the failure to adjust for a material subsequent event.

When a material event after the reporting period comes to light and management does not adjust the financial statements, the auditor must consider how this affects the financial statements and the audit report. Such a material subsequent event may require modification of the auditor’s opinion to reflect that the statements are not presented fairly in light of new information. If the client refuses to amend, the auditor may reissue the audit report with a modified opinion, or, if appropriate, seek legal advice to determine the proper course of action. In some cases, the auditor may also resign if the client will not allow a necessary modification or if continuing the engagement would be inappropriate. Preparing new financial statements is management’s task, not the auditor’s, and issuing an unmodified report would not be appropriate when a material subsequent event has not been disclosed. A disclaimer of opinion is a more extreme response tied to scope limitations rather than simply the failure to adjust for a material subsequent event.