A. A lawsuit is resolved that is explained in a separate paragraph of the prior-year's auditor's
report.
B. New information is discovered concerning undisclosed related party transactions of the prior
year.
C. A technological development occurs that affects the entity's ability to continue as a going
concern.
D. The entity sells a subsidiary that accounts for 35% of the entity's consolidated sales.

Answer(s): B
Explanation:
Choice "b" is correct. If an auditor becomes aware of material information that existed at the
date of the auditor's report, and which would have affected that report, the auditor needs to take
appropriate action. Since related party transactions should be disclosed in the financial
statements, it is likely that the auditor would need to make further inquiries to determine whether
the lack of disclosure wil affect the previously issued report. Choice "a" is incorrect. Resolution
of a lawsuit that was disclosed in the prior year's audit report would not be likely to affect the
audit report, as auditors are not required to update their reports for events occurring after the
fact. Choice "c" is incorrect. A technological development that affects the entity's ability to
continue as a going concern would not be likely to affect the previous year's audit report, as
auditors are not required to update their reports for events occurring after the fact. Choice "d" is
incorrect. Sale of a subsidiary would not be likely to affect the previous year's audit report, as
auditors are not required to update their reports for events occurring after the fact.
QUESTION: 99
On February 9, Brown, CPA, expressed an unqualified opinion on the financial statements of
Web Co. On October 9, during a peer review of Brown's practice, the reviewer informed Brown
that engagement personnel failed to perform a search for subsequent events for the Web
engagement. Brown should first:

A. Request Web's permission to perform substantive procedures that would provide a
satisfactory basis for the opinion.
B. Inquire of Web whether there are persons currently relying, or likely to rely, on the financial
statements.
C. Take no additional action because subsequent events have no effect on the financial
statements that were reported on.
D. Assess the importance of the omitted procedures to Brown's present ability to support the
opinion.

Answer(s): D
Explanation:
Choice "d" is correct. If an omitted audit procedure is discovered, the auditor should assess the
importance of the omitted procedure to the auditor's ability to support the opinion. It might be the
case that other audit procedures tended to compensate for the omitted procedure, in which case
no further action would be necessary. Choice "a" is incorrect. The auditor would only request
permission to perform substantive procedures if no other procedures compensated for the
missing one, and if there were persons relying (or likely to rely) on the financial statements.
Choice "b" is incorrect. The auditor would need to determine whether there were persons relying
(or likely to rely) on the financial statements, but this would not be done unless it had already
been determined that no other audit procedures compensated for the missing one. Choice "c" is

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