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

Upon discovering facts that existed at the report date, what should the auditor do first?

1. Notify regulatory agencies about the findings.

2. Issue revised financial statements immediately.

3. Assess who may be relying on the financial statements.

4. Inform the client's board of directors about the issue.

The correct answer is: Assess who may be relying on the financial statements.

When an auditor discovers facts that existed at the report date, the first action should be to assess who may be relying on the financial statements. This is crucial because understanding the audience who relies on the financial statements assists the auditor in evaluating the significance of the discovered facts and determining the necessary next steps. For instance, if the auditor identifies that stakeholders such as investors, creditors, or regulatory bodies could be affected by the information, this will influence how the auditor communicates the findings and sets the appropriate response measures, such as whether to revise the financial statements or inform specific parties. This action is essential in ensuring that all parties who might be impacted by the discrepancies are properly taken into account and can make informed decisions based on updated or corrected information. While notifying regulatory agencies, issuing revised financial statements, and informing the board of directors are important steps that may follow, they should come after determining the potential impact on those who rely on the financial statements. These subsequent actions can differ based on the specific circumstances surrounding the discovered facts and their implications for financial statement users.