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

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Prepare for the CPA Auditing and Attestation Exam. Leverage comprehensive materials, flashcards, and detailed explanations for each question. Master essential auditing concepts and techniques with confidence!

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Which event is most likely to prompt an auditor to further inquire about previously issued financial statements?

A new investment opportunity is presented to the entity.
A change in regulatory oversight occurs.
A contingency is resolved, impacting net income.
New information regarding undisclosed lease transactions from the audited period is discovered.

The correct answer is: New information regarding undisclosed lease transactions from the audited period is discovered.

The chosen answer highlights a scenario where newly discovered information directly impacts the accuracy and completeness of previously issued financial statements. When undisclosed lease transactions from the audited period come to light, it raises significant concerns regarding the financial reporting integrity at the time the statements were initially prepared. This type of information could potentially affect asset valuations, liabilities, and overall earnings, which are critical components of the financial statements. In the context of auditing, the discovery of such material information necessitates further inquiry because it could indicate that the previously issued statements do not fairly present the financial position or results of operations of the entity. Auditors have a responsibility to ensure that all relevant transactions and events are disclosed in financial statements, and any undisclosed transactions can lead to a misrepresentation of the financial condition. In contrast, while a new investment opportunity or a change in regulatory oversight might be significant business events, they do not inherently alter past reported financial statements. Similarly, the resolution of a contingency may affect the current period's income but does not necessitate a reassessment of previously issued financial statements unless it involves significant adjustments or disclosures related to material uncertainties that were inadequately addressed earlier.