week 6 discusion thread 2

1. Why is it important from an auditing perspective that an auditor be required to adjust the financial statement amounts for some material subsequent events? If an auditor fails to live up to this standard, what is the potential liability exposure for the auditor?

If the auditor is aware of a subsequent event that would change the reader’s or investor’s mind about the company and its financial statements, that subsequent event must be disclosed. Typically, such events have a direct effect on financial statement amounts. For example, the post-balance sheet date collection of a material receivable that had been written off at the balance sheet should lead to eliminating the write-off because the auditor knows prior to the issuance of the financial statements that the write-off is wrong and receivable balance is higher. On the other hand, some subsequent events do not affect the balance sheet amount but provide important information about the account at that date. An example of such a subsequent event would be for a manufacturing firm that had a fire destroy its manufacturing plant on February 10. Although the financial statements may present a fair representation as of December 31, a reader has the right to know that continuity of business has been threatened due to a fire at the plant.

2) Read the article on frivolous tax arguments at  https://www.irs.gov/site-index-search?search=tax+arguments&field_pup_historical_1=1&field_pup_historical=1

What do you find interesting or disturbing?

What is interesting is that the article is providing a feedback to common frivolous tax arguments made by various groups and individuals. These arguments relates to their lack of full compliance to the taxation laws as stipulated by the Fed. The paper list the contraventions or frivolous argument that provides the response which is basically a rejection of each of the arguments. The authority should have given the reason why their stand on compliance to federal tax laws is not accurate but instead is openly rejecting the frivolous arguments. The paper goes ahead to even mention the penalties for failing to comply.