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

When a CPA issues an unmodified opinion, which situation could lead to reviewing subsequent events?

1. Management making insignificant adjustments.

2. Inquiries regarding current cash forecasts.

3. Learning about material losses incurred post opinion issuance.

4. Confirming bank balances unrelated to the financial statements.

The correct answer is: Learning about material losses incurred post opinion issuance.

An unmodified opinion indicates that the CPA believes the financial statements provide a true and fair view in accordance with applicable financial reporting frameworks. However, this opinion doesn't encompass events that occur after the report's issuance. Learning about material losses incurred after the opinion issuance is crucial for several reasons. Material losses could significantly affect the financial condition of the entity, necessitating an assessment of their implications on the financial statements that were previously audited. The CPA must consider whether these events require adjustments to the financial statements or additional disclosures. As a result, reviewing subsequent events is essential to ensure that the information presented remains relevant and accurately reflects the entity's current financial position. In contrast, significant adjustments by management, inquiries about cash forecasts, or confirming bank balances unrelated to the financial statements wouldn't typically trigger a review of subsequent events. Those scenarios tend to involve either routine discussions or clarifications that do not directly impact the integrity of the financial statements as previously reported. Therefore, understanding the implications of material losses occurring post-report demonstrates the importance of recognizing events that may require further scrutiny and appropriate action to maintain the credibility of the financial reporting.