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

When is it inappropriate to refer readers of an auditor's report to a financial statement footnote?

1. Subsequent events.

2. Pro forma effects of a business combination.

3. Results of confirmation of receivables.

4. Sale of a discontinued operation.

The correct answer is: Results of confirmation of receivables.

Referring readers of an auditor's report to a financial statement footnote is generally considered inappropriate when it relates to significant information that needs to be explicitly communicated in the report itself, rather than relegated to a footnote. The confirmation of receivables is a critical aspect of the audit process, as it directly affects the valuation and existence assertions of accounts receivable. When an auditor assesses the collectibility of receivables, the implications of those findings are fundamental to the overall financial statements. If there are issues detected in the confirmation process (such as uncollectible receivables), these findings should be transparently addressed in the auditor's report, rather than just referenced in a footnote. This ensures that stakeholders fully understand the implications of the auditor's work on the financial position and performance of the entity being audited. In contrast, the other scenarios presented, such as subsequent events, pro forma effects of a business combination, and sales of discontinued operations, typically involve aspects that can be adequately summarized or referred to in footnotes, as they may not fundamentally alter the core assertions of the financial statements. Thus, while footnotes are designed to provide supplementary information and additional clarity, key elements regarding the results of confirmations of receivables warrant direct