FINAL CASE STUDY QUESTION IN AUDITING

Q11-15 You are currently completing the audit of Erbilek Co for the year ended 31 December 2018. It is planned that the financial statements will be approved on 18 March 2019 and the auditors report will be signed on that date. The financial statements will be issued on 5 April 2019. On 31 March 2019, you become aware that Erbilek Cos major customer has ceased to trade. Audit documentation show that the customers account included invoices that were more than 9 days overdue. Although this material balance is expected to be inrecoverable. It does not affect the going concern basis for the preparation of the financial statements. However, it will significantly reduce future revenue.

1. Which TWO of the following are subsequent events according to ISA 560 Subsequent Events?

1. Facts that become known after the date of the auditors report
2. Events during the year that relate to the prior periods financial statements
3. Events occuring after the period end, but before the date of the auditors report
4. Any event that provides evidenceof conditions that existed at the reporting date

2. Identify by drafting on the timeline, the date up until which you should perform subsequent events procedures.

31 December 2018 18 March 2019 31 March 2019 5 April 2019

3. Which TWO actions should the auditor take if a material event occurs between 31 December 2018 and 18 March 2019 that may require amendment to or disclosure in, Erbilek Cos financial statements?

1. If not amended or disclosed in the financial statements, qualify the audit opinion because the matter is material
2. Write a memo for the audit file because subsequent events will affect next years financial statements but not this years
3. Advise management how to prorerly account for and adequately disclose the event in the financial statements
4. Require management to sign a management representation letter taking responsibility for the subsequent event and its effect on future financial statements.

4. Which of the following are actions the auditor should take concerning the facts about the major customer. Select all that apply.

1. Issue a qualified auditors report because the facts of the subsequent event were not made known to the auditor until after the date of the initial auditors report
2. Extend the subsequent event review process
3. If the financial statements are amended, provided a new auditors report dated not earlier than the date amended financial statements are approved
4. Request that the financial statements as they currently stand and the auditors report thereon should not be issued.

4. On 4 April 2019, the directors adjust the financial statements to write down the amount due from the major customer included in trade receivables. Which of the following audit opinions will be issued if there is NO disclosure of the matter in the financial statement?

1. A qualified audit opinion as the financial statements are materially misstated.
2. A qualified audit opinion as sufficient appropriate evidence has not been obtained
3. An unmodified audit opinion
4. An unmodified opinion with an emphasis of matter paragraph