B) How will this impact financial statements like Balance Sheet and Income statement. Can you please provide an example of difference caused in the form of a small journal entry ?

Exercise 3 During the audit of the Company's annual financial statements, the audit team stated the following: 1. The company operates in the construction sector and usually executes 1-3 contracts per year of total average revenues around PLN 45 million per year. 2. The printout of receivables balances indicates that the Company has receivables from: J.W Construction Ltd. - 5 mln PLN, Warbud S.A. - 10 mln PLN, Deweloper Ltd.- 6 mln PLN, Total outstanding balance of the receivables is 21 mln PLN. 3. The Company presented to the auditor reconciliations of those balances (sent and received by the Company), whi confirmed the above balances. 4. Confirmations of balances sent by the auditor (and sent to his address) showed the balance: J.W Construction Ltd.,- 4,5 mln PLN, Warbud S.A.,-10 mln PLN, Deweloper Ltd.- did not sent back a confirmation of balances until the end of the audit. 5. In addition, the auditor obtained a letter from the Company's lawyer, in which the lawyer states that the receivable from Deweloper Ltd. is in court, but the probability of getting paid is very low due to poor financial condition of Deweloper Ltd and low assets of this company. The Company did not accounted for write-offs for the payment of these receivables. 6. The auditor received a letter from the Management Board of the Company informing that the financial trouble Deweloper Ltd. are temporary and the receivable will be recovered in the coming year. To do: a) Calculate overall materiality as 1% of the revenue and performance materiality at 75% of overall materiality. Determine what should be the auditor conduct, what should be the value of receivables and how much the financial result change. Propose adjustments using the adjustments list. Overall Materiality.... Performance materiality............. FO Exercise 3 During the audit of the Company's annual financial statements, the audit team stated the following: 1. The company operates in the construction sector and usually executes 1-3 contracts per year of total average revenues around PLN 45 million per year. 2. The printout of receivables balances indicates that the Company has receivables from: J.W Construction Ltd. - 5 mln PLN, Warbud S.A. - 10 mln PLN, Deweloper Ltd.- 6 mln PLN, Total outstanding balance of the receivables is 21 mln PLN. 3. The Company presented to the auditor reconciliations of those balances (sent and received by the Company), whi confirmed the above balances. 4. Confirmations of balances sent by the auditor (and sent to his address) showed the balance: J.W Construction Ltd.,- 4,5 mln PLN, Warbud S.A.,-10 mln PLN, Deweloper Ltd.- did not sent back a confirmation of balances until the end of the audit. 5. In addition, the auditor obtained a letter from the Company's lawyer, in which the lawyer states that the receivable from Deweloper Ltd. is in court, but the probability of getting paid is very low due to poor financial condition of Deweloper Ltd and low assets of this company. The Company did not accounted for write-offs for the payment of these receivables. 6. The auditor received a letter from the Management Board of the Company informing that the financial trouble Deweloper Ltd. are temporary and the receivable will be recovered in the coming year. To do: a) Calculate overall materiality as 1% of the revenue and performance materiality at 75% of overall materiality. Determine what should be the auditor conduct, what should be the value of receivables and how much the financial result change. Propose adjustments using the adjustments list. Overall Materiality.... Performance materiality............. FO