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  • The Auditor Is Auditing Financial Statements For The Year Ended December 31

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    The auditor is completing an audit of financial statements for the year ended December 31, 2015. Situations that arose after year-end but before completion of the audit are presented. The summary provides the auditor's determination of whether the financial statements should be adjusted only, adjusted and disclosed, disclosed only, or neither adjusted nor disclosed for each situation.

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    The auditor is auditing financial statements for the year ended December 31

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    The auditor is completing an audit of financial statements for the year ended December 31, 2015. Situations that arose after year-end but before completion of the audit are presented. The summary provides the auditor's determination of whether the financial statements should be adjusted only, adjusted and disclosed, disclosed only, or neither adjusted nor disclosed for each situation.

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    437 views2 pages

    The Auditor Is Auditing Financial Statements For The Year Ended December 31

    Uploaded by

    Something Chic
    The auditor is completing an audit of financial statements for the year ended December 31, 2015. Situations that arose after year-end but before completion of the audit are presented. The summary provides the auditor's determination of whether the financial statements should be adjusted only, adjusted and disclosed, disclosed only, or neither adjusted nor disclosed for each situation.

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    © All Rights Reserved
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    of 2

    The auditor is auditing financial statements for the year ended December 31, 2015, and is

    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.

    1. On February 12, 2016, the client agreed to an out-of-court settlement of a property


    damage suit resulting from an accident caused by one of its delivery trucks. The accident
    occurred on November 20, 2015. An estimated loss of $30,000 was accrued in the 2015
    financial statements. The settlement was for $50,000.
     Should be adjusted and disclosed in the FS. Provisions needs to be adjusted for
    20,000
     In this situation, the accident happened during the audit period, and the provision
    made was less than the actual sum, requiring a $20,000 adjustment to the
    provision.

    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.

    5. On February 2, 2016, the board of directors took the following actions:


    (a) Approved officers’ salaries for 2016. Neither adjusted nor disclosed in FS
    (b) Approved the sale of a significant bond issue. Neither adjusted nor disclosed in FS
    (c) Approved a new union contract containing increased wages and fringe benefits for
    most of the employees. The employees had been on strike since January 2, 2016. Neither
    adjusted nor disclosed in FS
     However, the auditor must determine if there are any retrospective effects from
    201 and make the necessary adjustments. The items (b) and (c) may be disclosed
    in the following events.
    6. A major customer was killed in a boating accident on January 25, 2016. The customer
    had pledged his boat as collateral against a loan that he took out in 2015. The boat, which
    was destroyed in the accident, was not insured. The allowance for doubtful accounts is
    not adequate to cover the anticipated loss.
     Adjusted only in FS.
     Here, the auditor needs to verify the amount of allowance of doubtful accounts,
    and provision should be made for the additional amount as required.

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