1. Identify and discuss the issue.
2. Describe the impact on the auditor's report, if any, should this issue remain unresolved.

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Hobbes Co manufactures men's clothing, and its year end was 31 December 20x0. You are an audit supervisor of Maria 8: Co and the yearend audit for Hobbes Co is due to commence shortly. The draft nancial statements recognize prot before tax of Php2.6m and total assets of Php18m. You have been given responsibility for auditing receivables, which is a material balance, and as part of the audit approach, a positive receivables circularization is to be undertaken. At the planning meeting, the nance director of Hobbes Co informed the audit engagement partner that the company was closing one of its smaller production sites and as a result, several employees would be made redundant. A redundancy provision of Php110,000 is included in the draft nancial statements. A few months have now passed, and the audit team is performing the audit eldwork including the audit procedures which you recommended over the redundancy provision. The team has calculated that the necessary provision should amount to Php305,000. The finance director is not willing to adjust the draft financial statements