Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

If an unusual subsequent event occurs after the financial statements are issued, how should an auditor handle this in their report?

1. Modify the opinion to adverse

2. Include an emphasis-of-matter paragraph

3. Issue a qualified opinion

4. No mention of the event is needed

The correct answer is: Include an emphasis-of-matter paragraph

When an unusual subsequent event occurs after the financial statements are issued, it is essential for the auditor to communicate the significance of this event to the users of the financial statements. Including an emphasis-of-matter paragraph in the auditor's report serves this purpose effectively. This paragraph draws attention to the event and its potential impact on the financial statements, but it does not change the auditor’s opinion on the statements themselves. The emphasis-of-matter paragraph allows the auditor to provide context for the unusual event, highlighting its relevance without altering the overall opinion on the financial statements. This is crucial for ensuring transparency and maintaining trust in the audit process. It acknowledges the event’s occurrence and informs users of the financial statements while preserving the integrity of the previously issued financial results. In contrast, modifying the opinion to adverse, issuing a qualified opinion, or stating that no mention is needed would not adequately reflect the significance of the event. An adverse opinion, for instance, suggests that the financial statements are materially misstated, which wouldn't apply solely due to a subsequent event unless the event reflects a prior unaddressed misstatement. Likewise, a qualified opinion indicates a material limitation of scope or a specific misstatement, which is not the case if the financial statements remain generally accurate aside from the