Question
During Joseph Josephs', CPA, audit of the Belton Company's prior year's financial statements, he notices that sales and profits have fallen dramatically from their previous
During Joseph Josephs', CPA, audit of the Belton Company's prior year's financial statements, he notices that sales and profits have fallen dramatically from their previous year highs. His subsequent (January 20, current year) discussion with John Land and Jill Her (equal 50% shareholders of the Company) indicate that John recognizes that he spent much less time in the previous year with the business than he did in prior years. He agreed to refund $100,000 of his $1 million previous year's compensation immediately, and John and Jill agreed that he would receive his original $1 million compensation in future years (as long as he re-dedicated his efforts on behalf of the company). Joseph then reduced the Belton Company's previous year's salary expense for the $100,000 refund, since the parties attributed these transactions to previous year's events. He then issued the audited financial statements on March 2, of the current year. However, on May 2, of the current year, the Sunshine bank called him and asked him to attribute the $100,000 to the current year's events (since it was paid then) and to recall and re-issue the financial statements. Should Joseph require the recall and re-issuance of the previous year's financial statements?
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