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

What discovery after an auditor's report typically requires further inquiry into previously audited financials?

1. New findings regarding undisclosed transactions.

2. A lawsuit resolution that might not affect financials.

3. Changes in corporate structure observed after the audit.

4. Updates on regulatory compliance statuses.

The correct answer is: New findings regarding undisclosed transactions.

The discovery of new findings regarding undisclosed transactions after an auditor's report necessitates further inquiry into previously audited financials because it has the potential to impact the integrity and accuracy of the financial statements. Undisclosed transactions may indicate underlying issues such as fraud, misrepresentation, or cuts in proper accounting practices. These issues can significantly alter the financial position or performance of the entity, requiring the auditor to assess the implications of these findings on prior audits to determine if restatement is necessary or if further audit procedures are warranted. In contrast, lawsuit resolutions that might not affect the financials do not always require additional inquiry, as they may not have a material impact on previously reported figures. Similarly, changes in corporate structure, while significant, do not inherently indicate a need to revise previous financial statements unless they directly relate to financial reporting. Updates on regulatory compliance statuses also may not directly influence previously issued financial statements unless they reveal violations that affect the financial condition of the organization, thus making them less critical for immediate re-evaluation of the past financials compared to discovering undisclosed transactions.