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

Which of the following procedures would an auditor most likely perform to obtain evidence about subsequent events?

1. Apply analytical procedures to year-end inventory.

2. Investigate changes in capital stock recorded after year-end.

3. Examine compliance with laws and regulations during the audit period.

4. Review internal control assessments made prior to year-end.

The correct answer is: Investigate changes in capital stock recorded after year-end.

The rationale behind selecting the investigation of changes in capital stock recorded after year-end as the procedure an auditor would most likely perform to obtain evidence about subsequent events lies in the nature of subsequent events themselves. Subsequent events are events or transactions that occur after the balance sheet date but before the financial statements are issued. Auditors need to evaluate these events to determine whether they have a significant impact on the financial statements being audited. Investigating changes in capital stock is particularly relevant because such changes can indicate significant developments in a company’s financial condition or operations that could affect the financial statements' accuracy or fairness. These changes may pertain to issues of new stock, repurchases, stock splits, or conversions, all of which could materially impact equity, earnings per share, or the overall financial position of the entity. While the other procedures listed have their own importance, they do not specifically focus on obtaining evidence regarding subsequent events. Applying analytical procedures to year-end inventory primarily relates to assessing the reasonableness of recorded inventory, and examining compliance with laws and regulations during the audit period focuses on the operational aspects of the organization rather than subsequent events specifically. Reviewing internal control assessments made prior to year-end pertains to examining the effectiveness of controls rather than events occurring post-balance sheet date