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. - 4 M PLN, Warbud S.A. - 10 M PLN, Deweloper Ltd.- 6 M PLN, Total outstanding balance of the receivables is 20 min PLN. 3. The Company presented to the auditor reconciliations of those balances (sent and received by the Company), which confirmed the above balances.Confirmations of balances sent by the auditor (and sent to his address) showed the balance: J.W Construction Ltd.,- 2,8 M PLN, Warbud S.A.,- 8 M PLN, Deweloper Ltd.-6 M PLN 4. In addition, the auditor obtained a letter from the Company's lawyer, in which the lawyer states that the receivable from Warbud Ltd. is in court, because there is an issue about the quality of the work provided by the Company. Warbud questions 2 M (out of 10 M of the outstanding receivables at the year.end). The Company did not accounted for write-offs for the payment of these receivables. 5. In addition receivable from J.W Construction is overdue and should be paid 3 months ago. J.W Construction is in poor financial condition and it is highly probable that it is going to go bankrupt. 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 of J.W. Construction are temporary and the receivable will be recovered in the coming year. 7. Overall materiality for the Company amounts to 4,5 M, and Performance materiality is 3,6 M. 2) TOTAL To do: a) Determine what should be the auditor conduct, what should be the value of receivables and how much the financial result would change. Propose adjustments using the adjustments list. Balance Sheet Income No Description 1) Name of the line of the financial statement DT statement DT b) What would be auditors opinion if the company booked all the proposed above adjustments? Give type of the opinion and explain your approach.