Consider the following material and independent situations (i) to (iii) below. In each situation, the following dates apply: • Balance date: 30 June 2021 • Date of audit report: 16 August 2021 • Audited financial report and audit report sent to shareholders: 23 August 2021 • Annual general meeting: 30 September 2021 (i) The client purchased raw materials that were received before the financial year end. The purchase was recorded based on its estimated value. The supplier’s invoice, received on 30 July 2021, showed that the cost was substantially different from the estimated value. (ii) On 10 August 2021, the directors signed a contract to upgrade the client’s airconditioning system. The first payment of $100,000 is due on 1 September 2021. Work will be completed by 30 June 2022, and the final contract payment will be made at that time. (iii) On 25 August 2021, the general manager informed you that on 18 August 2021 the directors decided to sell land that the client was holding as a long-term investment. The contract was due to be signed on 27 August 2021. Required: For each of the events (i), (ii) and (iii) above: (a) Describe any two (2) audit procedures that the auditor could have taken in order to verify the subsequent event. (b) State the appropriate action to be carried out on the audited financial statements. The alternative actions are as follows: • Adjust the 30 June 2021 financial statements, or • Disclose the information in the notes to the 30 June 2021 financial statements, or • Request the client to recall the 30 June 2021 financial statements for revision, or • No action is required Give reasons for your decision.
Consider the following material and independent situations (i) to (iii) below.
In each situation, the following dates apply:
• Balance date: 30 June 2021
• Date of audit report: 16 August 2021
• Audited financial report and audit report sent to shareholders: 23 August 2021
• Annual general meeting: 30 September 2021
(i) The client purchased raw materials that were received before the financial year end. The purchase was recorded based on its estimated value. The supplier’s invoice, received on 30 July 2021, showed that the cost was substantially different from the estimated value.
(ii) On 10 August 2021, the directors signed a contract to upgrade the client’s airconditioning system. The first payment of $100,000 is due on 1 September 2021. Work will be completed by 30 June 2022, and the final contract payment will be made at that time.
(iii) On 25 August 2021, the general manager informed you that on 18 August 2021 the directors decided to sell land that the client was holding as a long-term investment. The contract was due to be signed on 27 August 2021.
Required:
For each of the events (i), (ii) and (iii) above:
(a) Describe any two (2)
(b) State the appropriate action to be carried out on the audited financial statements. The alternative actions are as follows:
• Adjust the 30 June 2021 financial statements, or
• Disclose the information in the notes to the 30 June 2021 financial statements, or
• Request the client to recall the 30 June 2021 financial statements for revision, or
• No action is required
Give reasons for your decision.
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