Jones and Smith, Chartered Accountants have audited the financial statements of Avril Limited. The financial statements have been issued receiving Board of Directors approval. Jones and Smith discovered a major lawsuit was decided against Avril Limited subsequent to yearend, but before the audit report was signed by the auditors. The outcome of the lawsuit was not brought to the attention of Jones and Smith (auditors) during the audit.

Explain the auditors responsibility and the audit procedures and actions that should be completed by the auditor. Discuss what the expectation of management is in this situation.