Standards on Auditing Disclosures

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Running Heading: Case 4 and Case 6 Studies


Low Company – Standards on Auditing Disclosures

Memo –Low Company

List of Relevant Authorities
AU 504, AU 9504: Association with Financial Statements
Should a CPA audit major fluctuations in the fourth quarter of the financial statement made by a publicly traded company after they are disclosed in the company’s annual financial statement notes? Issue

Aaron Jones, CPA, is auditing the current year’s financial statements of Low Company, a publicly traded company. Aaron notices some major fluctuations in Low’s fourth quarter of the previous year’s financial statement balances. He is aware that security holders of publicly traded company stock that does not separately report fourth quarter results often “impute” such results by subtracting data based on third quarter interim balances from the year-end balances. Thus, companies should report such significant events as disposals of segments and other unusual items for that quarter as a note to the annual financial statements. Aaron notices that Low makes such disclosures, but is unsure if his firm should audit these additional, supplementary disclosures (Module 6 Audit, Case 4). Information

In accordance to AICPA Statement on Auditing Standards, AU 9504.1, after the disclosure of any adjustments made about the interim financial data are noted on the annual report financial statement, the auditor does not have any obligation to audit the interim data. Unless the auditor has been specifically called to do so, he or she does not need to audit the data after auditing the annual financial statements. Thus, Aaron Jones, CPA, does not need to audit the supplementary disclosures made in regards to the major fluctuations in the Low Company’s fourth quarter or the previous year’s financial statement balances. Conclusion

All in all, Jones’s firm has no obligation to audit the additional, supplementary disclosures, unless told otherwise....
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