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

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What most likely necessitates an auditor to make inquiries about previously issued financial statements?

The sale of a subsidiary that accounts for a significant portion of net income.
The resolution of a significant contingency announced after the report was issued.
The discovery of information regarding a prior-existing contingency.
The introduction of new technology that might affect going concern.

The correct answer is: The discovery of information regarding a prior-existing contingency.

An auditor's inquiries about previously issued financial statements are often driven by the discovery of new information that could affect the way those statements are understood or interpreted. When new information surfaces regarding a contingency that existed at the time the prior financial statements were issued, it raises the potential for the previous statements to be materially misstated or misleading. This includes scenarios where additional insights about a contingent liability come to light, which could alter the evaluation of that liability and its possible impact on the prior financial results. As such, this necessitates a detailed examination and consideration of whether restatements or further disclosures are required in order to provide a true and fair view of the company's financial position, ensuring compliance with reporting standards and maintaining the integrity of the financial information provided to stakeholders. In contrast, while significant events like the sale of a subsidiary, resolution of a significant contingency, or the introduction of new technology are indeed important and warrant auditor attention, they do not inherently involve the same level of direct impact on previously issued financial statements as the discovery of new information about a contingency does. Such changes could influence future financial reporting but might not necessitate altering prior statements unless they are linked to information that affects their accuracy or completeness.