24-25 (oBJECTIVES 24-4, 24-8) The field work for the June 30, 2016, audit of Tra

Question

24-25 (oBJECTIVES 24-4, 24-8) The field work for the June 30, 2016, audit of Tracy Brewing Company was finished August 19, 2016, and the completed financial statements, accom- panied by the signed audit reports, were mailed September 6, 2016. In each of the highly material independent events (a. through h.), state the appropriate action (1 through 4) for the situation and justify your response. The alternative actions are as follows: 1. Adjust the June 30, 2016, financial statements. 2. Disclose the information in a footnote in the June 30, 2016, financial statements 3. Request the client to recall the June 30, 2016, statements for revision 4, No action is required, The events are as follows: a. On August 6, 2016, the auditor discovered that a debtor of Tracy Brewing went bankrupt on July 30, 2016. The cause of the bankruptcy was an unexpected loss of a major lawsuit on July 15, 2016, resulting from a product deficiency suit by a different customer. b. On December 14, 2016, the auditor discovered that a debtor of Tracy Brewing went bankrupt on July 15, 2016, due to declining financial health. The sale generating the receivable had taken place January 15, 2016 c. On December 14, 2016, the auditor discovered that a debtor of Tracy Brewing went bankrupt on October 2, 2016. The sale had taken place April 15, 2016, but the amount appeared collectible at June 30, 2016, and August 19, 2016.

Explanation / Answer

Answers

a) Option 1) No action is required

Because the event has happened after the balancesheet date

b) Option 3) Request the client to recall the financial statements ending on balance sheet end date

It has been known now that the customer will surely default the payment and thats not the position in financial statements.

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