ExpertCPA · Question 32 · Area III: Performing Procedures
An auditor is performing an audit of a nonissuer's financial statements. The auditor identifies a subsequent event occurring after the balance sheet date but before the financial statements are issued: the settlement of a lawsuit for an amount significantly different from the year-end accrual. The cause of the lawsuit existed at the balance sheet date. How should this event be treated?
An auditor is performing an audit of a nonissuer's financial statements. The auditor identifies a subsequent event occurring after the balance sheet date but before the financial statements are issued: the settlement of a lawsuit for an amount significantly different from the year-end accrual. The cause of the lawsuit existed at the balance sheet date. How should this event be treated?
Answer options:
Adjust the financial statements to reflect the settlement amount.
Disclose the settlement in the notes but do not adjust the financial statements.
Recognize the difference as a gain or loss in the subsequent year.
Request management to rescind the settlement until after the audit report date.
How to approach this question
Full Answer
Common mistakes
Practice the full CPA AUD Practice Exam 2
78 questions · hints · full answers · grading