Section A: Q12

Specimen exam

Q12 Section A

2 marks

Cannavaro.com is a website design company whose year end was 31 December 20X4. The audit is almost complete and the financial statements are due to be signed shortly. Profit before tax for the year is $3.8m and revenue is $11.2m.

The company has only required an audit for the last two years and the board of directors has asked your firm to provide more detail in relation to the form and content of the auditor's report.

During the audit it has come to light that a key customer, Pirlo Co, with a receivables balance at the year end of $285,000, has just notified Cannavaro.com that they are experiencing cash flow difficulties, meaning they are unable to make any payments for the foreseeable future.

The finance director of Cannavaro.com has notified the auditor that he will write this balance off as an irrecoverable debt in the 20X5 financial statements.

The audit assistant assigned to the audit of Cannavaro.com wants a better understanding of the impact that subsequent events have on the audit and has made the following statements.

Identify, by clicking on the relevant box in the table below, whether each of the following statements is true or false.

  • All material subsequent events require the numbers in the financial statements to be adjusted
  • A non-adjusting event is a subsequent event for which NO amendments to the current year financial statements are required
  • The auditor’s responsibilities for subsequent events which occur prior to the audit report being signed are different from their responsibilities after the audit report has been issued
  • The auditor should request a written representation confirming that all relevant subsequent events have been disclosed