Question

Writing Assignment 2 It is February 16, 2018, and you are auditing Davenport Corporation's financial statements for 2017 (which will be issued in March 2018). You read in the newspaper that Travis Corporation, a major customer of Davenport, is in financial difficulty. Included in Davenport's accounts receivable is $50,000 (a material amount) owed to it by Travis. You approach Jim Davenport, president, with this information and suggest that a reduction of accounts receivable and recognition of a loss on doubtful accounts for 2017 might be appropriate. Jim replies, “Why should we make an adjustment? Ted Travis, the president of Travis Company, is a friend of mine; he will find a way to pay us, one way or another. Furthermore, this occurred in 2018, so let's wait and see what happens; we can always make an adjustment later this year." Required: In your position as the external auditor of Davenport Corporation, prepare a memo to Jim Davenport and address the following: 1. The ethical issues you both face. 2. The major stakeholders involved and state how the stakeholders would be affected by the course of action suggested by Jim Davenport. 3. Explain why you believe the course of action proposed by Charlie Brown is ethical or unethical. 4. Explain the proper accounting treatment and support your answer with appropriate authoritative citation.

Answer 1

	Auditee	Davenport corporation
	Audir year	2017
	Event occurred on	Feb 16, 2018
	Account publish date	Mar-18
	Account recievable of Travis corporation	50000	$
	Things to be considered by external auditor of Davenport corporation
1	The ethical issues you both face.
	The auditor and Jim Davenport, president both owes a moral and ethical reposibility towards all the stakeholders of General purpose financial statements. Here we came across a material event that has occurred prior to finalisation of financial statements which might impact the decisions of external parties i.e Lenders, creditors
2	The major stakeholders involved and state how the stakeholders would be affected by the course of action suggested by Jim Davenport.
	Here we came across an eventthat has a material impact on Davenport corporation financials. The facts that Ted Travis is know to Jim is irrelevant. This material event that has occurred prior to finalisation of financial statements might have an impact on the decisions of external parties i.e Lenders, creditors, investors
3	Explain why you believe the course of action proposed by Charlie Brown is ethical or unethical
	Here I believe the name Charlie Brown is wrongly considered, but based on grounds presented by Jim is not ethical
4	Explain the proper accounting treatment and support your answer with appropriate authoritative citation
	The company should make a provision for uncollected receievables
	allowance for uncollected receivables	Debit	50000
	Accounts recivables	Credit	50000