The Auditor Is Auditing Financial Statements For The Year Ended December 31
The Auditor Is Auditing Financial Statements For The Year Ended December 31
completing the audit in early March 2016. The following situations have come to the auditor’s
attention. Indicate and explain whether the financial statements should be adjusted only, adjusted
and disclosed, disclosed only, or neither adjusted nor disclosed.
2. Same facts as in part 1, except the accident occurred January 1, 2016, and no loss was
accrued.
Should be disclosed only in FS
the event happened after the audit period i.e., January 1
3. The client is a bank. A major commercial loan customer filed or bankruptcy on February
26, 2016. The bankruptcy was caused by an adverse court decision on February 15, 2016,
involving a product liability lawsuit initiated in 2014 arising from products sold in 2014.
The additional amount required in excess of existing provision is adjusted only in
FS.
In this case, the auditor must confirm or verify the amount of recovery and
provision made for the client's loss.
4. The client purchased raw materials that were received just before year end. The purchase
was recorded based on its estimated value. The invoice was not received until January 31,
2016, and the cost was substantially different than was estimated.
Adjusted only in FS.
The cost of inventory and account payable amounts must be adjusted based on the
actual invoice sum received.