![]() ![]() Discuss the matter with client management.Auditors should consider implementing the following measures when responding to a subsequent discovery of fact: The AICPA Clarified Statements on Auditing Standards, specifically AU-C Section 560, Subsequent Events and Subsequently Discovered Facts, guide the auditor's response to subsequently discovered facts in an audit engagement. Consequently, it is important that CPA firms be vigilant regarding information received after issuing an audit report and cognizant of the professional standards that guide their response. Indeed, approximately one-quarter of audit claims asserted against CPA firms in the AICPA Professional Liability Insurance Program are brought by third parties. ![]() What if a bank had loaned money to the client, or a new investor had just made a large cash infusion into the business? What if key financial metrics or debt covenants were barely reached and now may be questionable? If a CPA firm does not respond properly to a subsequent discovery of fact, third-party users of the financial statements may assert that the CPA firm failed to take necessary action to prevent reliance on the auditor's report on the financial statements. This consideration and management's response may reveal that the financial statements or related disclosures require adjustment, the report may need to be withdrawn and reissued, users of the financial statements may need to be notified, and the CPA firm may even need to consider ending the client relationship.Ĭonsider the auditor in the scenario above. Referred to as a "subsequent discovery of fact," new information that comes to light after the financial statements and related audit report are issued necessitates the auditor's consideration. Whether it is a newspaper headline, a conversation with a client, or an industry development, a seemingly innocuous piece of new information about a completed audit engagement may raise concern that, had this been known when the auditor's report was issued, the auditor might have revised the report. Doubt enters your mind as you envision every document you inspected and recall every conversation you had during the audit. The story describes a long-term business deal gone awry and hints of embezzlement by the corporate controller. One morning, you see your audit client's name emblazoned across the front page of the local newspaper.
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