Your audit client wants to disclose in a press release that net income for the year increased because of management’s efforts. You know that net income increased because the client’s pension assets had an unusually high return, and the pension expense on the income statement turned into “pension income.” Excluding the increase in net income from the positive pension expense, the firm’s net income actually declined.
a. If management issues the press release, describe how you might evaluate the quality of the information the client disclosed.
b. List some criteria for evaluating the quality of this information according to the accounting standards.
c. Would you let the client make the intended disclosure? Explain your answer.