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Auditing: Events Relating to Financial Statements

Imagine you are an auditor and accidentally discover that one of your clients has been hiding a significant bank account in the amount of $500,000. This account was not disclosed by the client and you had no knowledge of its existence at the time you completed the annual audit. You confronted the owner when you discovered the account, and he stated the account was created by the previous owners, through unrecorded orders, and that he (the current owner) did not take any part in creating this account; however, the new owner did not disclose the account to you. As the auditor, how would you perceive this information, and what would you do?

Solution Preview

We assume the facts are:

1. It is a company account that was not disclosed in the financial statements based on the stated information from the owner.
2. It was earned in a prior year and not reported in the financial statements or the tax returns.
3. It is material to the financial statements presentation.
4. It must be fixed.

Auditor responsibility:

1. I would explain to the owner that a restatement of the issued financial statements will be required and that the owner must retrieve all copies that were given to the company.
2.The verbal information from the current ...

Solution Summary

This 373 word solution discusses the actions an auditor must take after discovering an unreported material cash account. It is categorized with assumed facts, auditor responsibility and possible results.