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

Which procedure is most appropriate for auditors to verify subsequent event changes in working capital?

1. Recompute asset valuations before year-end.

2. Inquire of management regarding changes in working capital since year-end.

3. Review sales contracts signed after year-end.

4. Assess depreciation methods for assets sold after year-end.

The correct answer is: Inquire of management regarding changes in working capital since year-end.

The procedure to inquire of management regarding changes in working capital since year-end is crucial for auditors to obtain timely and relevant information about events that may have occurred after the reporting period. This inquiry allows auditors to gain insights into any material adjustments that could have affected working capital, such as increases or decreases in receivables, payables, or inventory levels. This approach is effective because management is often in the best position to provide updates on business operations and events occurring after the fiscal year-end that impact working capital. By discussing these changes with management, auditors can gather qualitative and quantitative data that inform their assessments of the company's financial position and ensure that any material subsequent events are accounted for in accordance with accounting standards. The options involving recomputing asset valuations, reviewing contracts, and assessing depreciation methods focus on specific areas of financial reporting rather than directly identifying and understanding the operational changes impacting working capital post-year-end. While those activities are relevant in their own contexts, they don't directly address the verification of subsequent events related to working capital as effectively as direct inquiries with management do.