For each of the events above discuss whether the financial statements require amendment. For each item explain the impact on the audit report if no changes are made to the financial statements.
You are an audit senior at Digby and Co and are completing the audit of ABC Ltd for the year-ended 31 December 2022. The following items are outstanding:
On 2 January 2023, Golf is Us, a major customer of ABC, was placed into administration owing £211,000.
On 3 January 2022, the sales director left the company. The sales director is suing ABC for constructive dismissal. If successful, the claim amounts to £280,000.
On 5 February 2023 there was a fire at the premises of the third party warehouse provider, which destroyed all inventory held there. Approximately one half of ABC's inventory was stored in these premises. The total value of inventory stored at the premises was £1,054,000.
The financial statements include a £40,000 provision for an unfair dismissal case brought by an ex-employee of ABC. On 7 February 2023 a letter was received from the claimant's solicitors stating that they would be willing to settle out-of-court for £25,000. It is likely the company will agree to this.
Financial statement extracts:
31 Dec 2022 £000Revenue21,960Total assets9,697Profit before tax1,048
Required:
For each of the events above discuss whether the financial statements require amendment. For each item explain the impact on the audit report if no changes are made to the financial statements.
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