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

What is a key requirement for the audit of comparative financial statements?

1. The prior year’s audit report must be printed in bold font.

2. The predecessor auditor's opinion must be unqualified.

3. The current auditor must provide comparative analysis.

4. Management should inform the auditors of all significant events.

The correct answer is: Management should inform the auditors of all significant events.

For the audit of comparative financial statements, a crucial requirement is that management should inform the auditors of all significant events. This is important because understanding any significant events that might have occurred between the periods being compared helps auditors assess the consistency and integrity of the financial statements. Such information can impact the company's financial position and performance, thus influencing the audit approach and the auditor's opinion. Management's communication of significant events, such as changes in accounting policies, fraud, litigation, or other extraordinary events, is vital for auditors to appropriately evaluate and disclose any implications these might have on the financial statements being audited. Auditors rely on this information to ensure that they have a comprehensive understanding of the financial landscape, which is essential for providing a fair and accurate audit opinion. The other options do not capture this key requirement. For instance, while it’s important for the predecessor auditor's opinion to be considered, an unqualified opinion is not a strict requirement for the audit of comparative statements. The specific formatting of prior year’s audit reports is also not mandated in such a manner, nor is a comparative analysis the sole responsibility of the current auditor without full context from management.