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

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What type of inquiry should an auditor perform when assessing subsequent events regarding material changes?

Review budget reports for the next fiscal year.
Ask about significant projects initiated since year-end.
Investigate whether major financing rounds have closed.
Determine if there have been significant changes to working capital.

The correct answer is: Determine if there have been significant changes to working capital.

In assessing subsequent events regarding material changes, focusing on significant changes to working capital is crucial for an auditor. Working capital, which represents the difference between current assets and current liabilities, serves as a key indicator of a company's financial health and operational liquidity. Any significant changes to working capital can signal alterations in the company's operational situation that might affect its financial statements and overall stability. While investigating other options like asking about significant projects initiated or major financing rounds can provide valuable insights, working capital specifically reflects immediate operational effectiveness and financial risk following the end of the reporting period. Such changes could impact liquidity and operational capabilities, making it a top priority for auditors when evaluating any subsequent events that could have material impacts on the financial statements. Thus, a thorough assessment of changes in working capital provides a clearer picture of the potential effects that may arise from subsequent events.