The auditor's opinion on the fairness of financial statements may be affected by subsequent events.
a. Define what is commonly refe
ed to in auditing as a subsequent event, and describe the two general types of subsequent events.
. Identify those auditing procedures that the auditor should apply at or near the completion of fieldwork to disclose significant subsequent events.
Linda Tanner, CPA, is auditing the Carson Company. For the cu
ent year, Carson is presenting December 31, 20X5, financial statements with comparative financial statements for the year ended December 31, 20X4. In the prior year audit, Linda identified an understatement of prepaid expenses of $100,000 at December 31, 20X4, that was not co
ected. In the cu
ent year, Linda found that prepaid expenses were understated by another $50,000 at December 31, 20X5.
a. Using the iron curtain approach, describe how Tanner would consider whether an adjustment is required.
. Using the rollover approach, describe how Tanner would consider whether an adjustment is required.
c. Describe what SEC Staff Accounting Bulletin No. 108 requires in this situation.
While performing your audit of Williams Paper Company, you discover evidence that indicates that Williams may not have the ability to continue as a going concern.
a. Discuss types of information that may indicate substantial doubt about a client's ability to remain a going concern.
. Explain the auditors' obligation in such situations.