QUESTION THREE

GBA Co. Ltd. (GBCAL) operates a chain of food wholesalers across the country and its year end is 31st December, 2018. The company is financed solely from equity including internally generated fund of the Company since incorporation. The final audit is nearly complete and it is proposed that the financial statements and audit report will be signed on 31st January, 2019. Revenue for the year is GH100 million and profit before taxation is GH15million. Total assets amounted to GH500 million. The following events have occurred subsequent to the year end: i. Warehouse: GBCAL has three warehouses and following a torrential rain on 25 January 2019, the warehouse located in Adenta got flooded. All the inventory was damaged and has been written-off. The insurance company has already been contacted. No amendments or disclosures have been made in the financial statements. ii. Lawsuit: A key supplier of GBCAL is suing them for breach of contract. The lawsuit was filed prior to the year end, and the sum claimed by them is GH 2 million. This has been disclosed as a contingent liability in the notes to the financial statements. However, a correspondence has just arrived from the supplier indicating that they are willing to settle the case for a payment by GBCAL of GH0.9 million. It is likely that the company will agree to this. iii. Receivable: A customer of GBCAL has been experiencing cash flow problems and owed the company GH0.08 million. The company has just become aware that its customer is experiencing significant going concern difficulties. GBCAL believes that as the company has been trading for many years, they will receive some, if not full, payment from the customer, hence they have not adjusted the receivable balance. Required:

(a) For each of the three events above: 6 (i) Discuss whether the financial statements require amendment. (1 mark)

(ii) Describe audit procedures that should be performed in order to form a conclusion on the amendment. (1 mark)

(iii)Explain the impact on the audit report should the issues remain unresolved. (1 mark) (Note: 3 marks for each event: encompassing the above requirements).