Question 5- Week 10 (11 marks)

Jonas Worth is the engagement partner for the financial report audit of Caufield Ltd for the

year ended 31 December, 20X7. The following material events or transactions have come to

Wood's attention before he is scheduled to issue his report on 28 February, 20X8.

a) On 3 January, 20X8, Caufield Ltd received a shipment of raw materials from korea. The

materials had been ordered in October 20X7, and shipped FOB shipping point in

November 20X7 (2.5 marks).

b) On 15 January, 20X8, the company settled and paid a personal injury claim of a former

employee as the result of an accident that occurred in March 20X0. The company had

not previously recorded a liability for the claim (2.5 marks). )

c) On 25 January, 20X8, the company agreed to purchase for cash the outstanding shares

of La Trobe Electrical Ltd. The acquisition is likely to double the sales volume of Caufield

Ltd (3 marks)

d) On 1 February, 20X8, a plant owned by Caufield Ltd was damaged by a flood, resulting

in an uninsured loss of inventory (3 marks)

Required:

For each of the above events or transactions, discuss audit procedures that should have

brought the item to the auditor's attention, and indicate the treatment required in the

financial report. Give reasons for your decision.

Client Accounting TreatmentJustification