- 10 Marks
AAA – Nov 2019 – L3 – Q5b – Current Issues, Audit-related Services
Discuss the financial reporting implications of a restructuring and recommend auditor actions if financial statements are not amended.
Question
You are the manager responsible for the audit of Obeyeyie Co. Ltd (OCL), a manufacturing company with a year ended 31 December 2018. The audit work has been completed and reviewed and you are due to issue the audit report in three days. The draft audit opinion is unmodified. The financial statements show revenue for the year ended 31 December 2018 of GH¢ 15 million, net profit of GH¢ 3 million, and total assets at the year-end are GH¢ 80 million.
The finance director of OCL e-mailed you this morning in addition to a WhatsApp message to tell you about the announcement yesterday of a significant restructuring of OCL, which will take place over the next six months. The restructuring will involve the closure of a factory and its relocation to another part of the country. There will be some redundancies and the estimated cost of closure is GH¢ 250,000. The financial statements have not been amended in respect of this matter.
Required:
i) Comment on the financial reporting implications, and advise the further audit procedures to be performed. (6 marks)
ii) Recommend the actions to be taken by the auditor if the financial statements are not amended. (4 marks)
Find Related Questions by Tags, levels, etc.
- Tags: Audit opinion, Financial Reporting, Post-Balance Sheet Events, Restructuring
- Level: Level 3
- Topic: Audit-related services, Current issues
- Series: NOV 2019