chapter 24 Auditing

For each of the following items, assume that Sherif Hegazy, CPA, is expressing an opinion on Matching Companys financial statements for the year ended December 31, 2020; that he completed field work on January 21, 2021, you are required to indicate for each item the required accounting of the event:

A large account receivable from Argos (material to financial statements presentation) was considered fully collectible on December 31, 2020. Argos suffered a plant explosion on January 25, 2021. Because Argos was Uninsured, it is unlikely that the account will be paid.

Matchings Manufacturing Division, whose assets constituted 45 percent of Matchings total assets at December 31, 2020, was sold on February 1, 2021. The new owner assumed the bonded indebtedness associated with this property.

The tax court ruled in favour of the company on January 24, 2021. Litigation involved deductions claimed on the 2017 and 2018 tax returns. In accrued taxes payable Matching had provided for the full amount of the potential disallowances. The Internal Revenue Service will not appeal the tax courts ruling.

On January 15, 2021, R.E. Fogler, a major investment advisor issued a negative report on Matchings long-term prospects. The market price of Matchings common stock subsequently declined by 40 percent.