FINAL CASE STUDY QUESTION IN AUDITING
Q11-15 You are currently completing the audit of Erbilek Co for the year ended 31 December 2018. It is planned that the financial statements will be approved on 18 March 2019 and the auditor’s report will be signed on that date. The financial statements will be issued on 5 April 2019. On 31 March 2019, you become aware that Erbilek Co’s major customer has ceased to trade. Audit documentation show that the customer’s account included invoices that were more than 9 days overdue. Although this material balance is expected to be inrecoverable. It does not affect the going concern basis for the preparation of the financial statements. However, it will significantly reduce future revenue.
2. Identify by drafting on the timeline, the date up until which you should perform subsequent events procedures.
31 December 2018 18 March 2019 31 March 2019 5 April 2019
3. Which TWO actions should the auditor take if a material event occurs between 31 December 2018 and 18 March 2019 that may require amendment to or disclosure in, Erbilek Co’s financial statements?
4. Which of the following are actions the auditor should take concerning the facts about the major customer. Select all that apply.
4. On 4 April 2019, the directors adjust the financial statements to write down the amount due from the major customer included in trade receivables. Which of the following audit opinions will be issued if there is NO disclosure of the matter in the financial statement?
1
Subsequent Events are:
2
______(*)_________________(*)__________________*____________________*_________
31st Dec. 2018 18th March 2019 31st March 2019 5th April 2019
Subsequent event procedures can be performed between 31st Dec. 2018 and 18th March 2019.
3
Since the event is of material nature which requires disclosure;
4
The information about the major customer who discontinued its operations is material as it will affect the cash inflows of the company. Its disclosure is a must, and the auditor must take following actions:
5
Any subsequent event which is material and requires disclosure, is either to be amended accordingly in the financial statements or disclosure must be mentioned in the board’s report.
Since the directors amended the books by treating the customer as a bad debt, the auditor can present an unmodified opinion with special reference to the above deed of the directors, so that the users of the financial statements are aware of this material fact.
Thus, the answer to this question is (d) An unmodified opinion with an emphasis of matter paragraph.
FINAL CASE STUDY QUESTION IN AUDITING Q11-15 You are currently completing the audit of Erbilek Co...
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