Reference no: EM133031632

Question - The following is the summarized issues after reviewing the audit working paper of Mudah Berhad:

i. On 1 March 2021 the company's financial statements for the year ended 31 December 2020 were authorised for issue. At 31 December 2020 the company had significant unhedged foreign currency exposures. By 1 March 2021 a significant loss had been incurred on these exposures because of a material weakening of the company's functional currency against the foreign currencies to which it is exposed.

ii. The entity gives warranties at the time of sale to purchasers of its products. On 31 December 2020 the company assessed its warranty obligation as RM100,000. Immediately before the 31 December 2020 annual financial statements were authorised for issue, the company discovered a latent defect in one of its lines of products (ie a defect that was not discoverable by reasonable or customary inspection). As a result of the discovery, the company reassessed its estimate of its warranty obligation at 31 December 2020 at RM150,000.

iii. On 28 February 2021 the company's financial statements for the year ended 31 December 2020 were authorised for issue. The company sells some products on credit to a customer before 31 December 2020. At 31 December 2020 the entity's management had no doubt about the customer's ability to pay the outstanding trade receivable of RM200,000. However, in February 2021, during the process of finalising the financial statements, the company is informed that the customer is going into liquidation because it has significant debt, has virtually no cash inflows, and its accounting records are poorly maintained. Because of this, the trade receivables are deemed worthless.

Required -

a. Analyze the events and its effect on the financial statement of Mudah Berhad.

b. Recommend the audit procedures to review the warranty provision of Mudah Berhad.