QUESTION EIGHTEEN

(a) The following figures are extracted from the draft financial statements of Mwendokasi Ltd, one of your audit clients for the year ended 31st December 2015.

TZS. 000 Current assets Inventory 140,000 Accounts Receivables 160,000 Non-Current liabilities Loan 130,000 Provision for warranty 15,000

In obtaining sufficient appropriate audit evidence, the following information relating to the above figures is obtained:

Inventory The client deals in high tech equipment such that technological advances move very fast resulting in a high rate of obsolete/outdated equipment. Included in the inventory figure is a cost of TZS.45 million for equipment which was sold in February 2016 for TZS.28 million

Accounts Receivables Shortly after the year end in the first quarter of 2016 and before finalization of audit a major credit customer of the company has gone into liquidation because of heavy trading losses. It is estimated that this customer will not be able to pay the debt. The amount included in receivable relating to this customer is TZS.54 million and no allowance for receivables has been made at the period end.

Loan Two weeks after the issuance of the audit report, the financial statements are issued and it is discovered that, the loan figure in the financial statements is materially misstated. Had this fact been known before the issuance of audit report, your firm would have modified the audit opinion. The figure of TZS.130 million is understated by TZS.64 million.

Provision for warranty The figure in the draft financial statements relates to warranty provision for the period for year ended December 2015. The policy of the company is that goods are sold with warranties enabling customers to return their goods within one year of purchase if goods are found to be faulty.

After the period end, before finalization of the report, you establish that repair costing TZS.46 million have been incurred relating to goods sold in the year under audit.

REQUIRED:

Discuss the audit issues relating to the above matters and recommend action that management of Mwendokasi Ltd should take in line with IAS 10: Event after the period end.