Question

In: Accounting

Axel Heckman is the engagement partner for the financial report audit of Sturfolks Equipment Ltd for...

Axel Heckman is the engagement partner for the financial report audit of Sturfolks Equipment Ltd for the year ended 30 June 2018. The following material events or transactions have come to Axel’s attention beforeheisscheduledto issuehisreporton31August 2018:
(a) On 14 July 2018, Sturfolks Equipment settled and paid a personal injury claim of a former employee as a result of an accident that occurred in March 2017. The company has not previously recorded a liabilityfortheclaim. (b)On 17 July 2018, Sturfolks Equipment agreed to purchase for cash the outstanding shares of Recreational Equipment Ltd. This acquisition is likely to double the sales volume of Sturfolks Equipment. (c)On 20 July 2018, the directors became aware of broken glass found in their pre-packaged sandpits. This product had only been on sale for two weeks and had been purchased directly from the manufacturer, NSWPIT Ltd, an unrelated company in Thailand, one week prior to being introduced to the public.
Tutorial Question 3
(d) On 3 August 2018, a plant owned by Sturfolks Equipment was damaged in a flood, resulting in an uninsuredlossofinventory.
Required: For each of the above events or transactions, identify audit procedures that should have brought the item to the auditor’s attention, and determinethe treatmentrequiredinthe financial report fortheyearended30June2018.

Solutions

Expert Solution

In accordance with FASB ASC 855-10-50, if an entity is a non-SEC filer, the entity shall disclose the date through which subsequent events have been evaluated. That date is either the date the financial statements were issued or the date the financial statements were available to be issued.

Additionally, certain unrecognized subsequent events must be disclosed if they are in such nature that omitting them would cause the financial statements to be misleading. For these events, the nature of the event and an estimate of its financial effect, or a statement that an estimate cannot be made, must be disclosed. Some unrecognized subsequent events may best be disclosed by supplementing the financial statements with pro forma information that reports the event as if it occurred at the financial statement date.

(a) The claim is paid after the year-end. Auditor should check why provision for expenses is not made in the year of the accident. If reasonable reason not found, auditor should qualify the report.

(b) Due to the purchase of equipment, sales become double. The equipment is purchased after the year end.

Auditor should check whether this information was available before the finanlisation of accounts, if yes proper disclosure should be made in books.

(c) Auditor shouls chexk the reason for broken and loss recognised in books or not

(d) Auditor should check the effect of damage of equipment on regular activity of business and report the same


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