Question

An auditor is auditing the client’s 12/31/2019 financial statements. The client’s foreign assets, which are material, are nationalized by another government on 1/26/2020. The client argues that this event should be recognized in the 12/31/2019 financial statements because it is misleading for the balance sheet to show assets at 12/31/2019 that the client no longer owns three weeks later. What opinion should the auditor give on these financial statements?

Answer 1

This falls under events occuring after the balance sheet date.

These are the events that take place between the date of balance sheet and the date on which such financial statements are approved and signed.

Such events suggest a requirement to adjust assets and liabilities on the balance sheet date or may need a disclosure.

In the given case, The client's foreign assets, which are material, are nationalized by another goverment on 1/26/2020 (i.e. after Balance Sheet date) and the client augues that this event should be recognized in the 12/31/2019 financial statements because it is misleading for the balance sheet to show assets at 12/31/2019 that the client no longer owns three weeks later.

As per this, either the adjustment should be made for this asset in the signed financials or auditor can give a qualified opinion as to this asset & balance sheet total.

He can also mention it in his audit report under Significant matters section.

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