Question

Explain why after the auditor issues the audit report to a CPA firm they encounter evidence showing that the clients financial statements one materially missed stated or lacked disclosures that are required. What would happen at this point? What if the client refuses to cooperate? What are the responsibilities Of the auditor and give to real world examples where issues like this will occur.

Answer 1

If management does not revise the financial statements in circumstances when the auditor believes they need to be revised when the mis-statement in the financial statement has been discovered after the issuance of audit report, then :

A. If the audited financial statements have not been made available to third parties, the auditor should notify management and those charged with governance—unless all of those charged with governance are involved in managing the entity — not to make the audited financial statements available to third parties before the necessary revisions have been made and a new auditor's report on the revised financial statements has been provided. If the audited financial statements are, nevertheless, subsequently made available to third parties without the necessary revisions, the auditor should apply the requirements of paragraph “B”

B. If the audited financial statements have been made available to third parties, the auditor should assess whether the steps taken by management are timely and appropriate to ensure that any one in receipt of the audited financial statements is informed of the situation, including that the audited financial statements are not to be relied upon. If management does not take the necessary steps, the auditor should apply the requirements of paragraph “C” below

C. If management does not take the necessary steps to ensure that anyone in receipt of the audited financial statements is informed of the situation, as provided by paragraph B., the auditor should notify management and those charged with governance — unless all of those charged with governance are involved in managing the entity — that the auditor will seek to prevent future reliance on the auditor's report. If, despite such notification, management or those charged with governance do not take the necessary steps, the auditor should take appropriate action to seek to prevent reliance on the auditor's report.