Reference no: EM132712677

You are the audit manager of Drew Co, a private company, that sells cookware. The draft financial statements for the year ended 31 March 2020 show revenue of $40 million, profit before taxation of $2 million and total assets of $30 million.

You are currently reviewing the following matter that have been left for your attention. On 1 July 2018, Drew introduced a ten-year warranty on all sales of its entire range of stainless steel cookware. Sales of stainless steel cookware for the year ended 31 March 2020 totalled $18 million. The notes to the financial statements disclose the following:

'Since 1 July 2018, the company's stainless steel cookware is guaranteed to be free from defects in materials and workmanship under normal household use within a ten-year guarantee period. No provision has been recognised, as the amount of the obligation cannot be measured with sufficient reliability.' Your auditor's report on the financial statements for the year ended 31 March 2019 was unmodified.

Required:

Problem 1: Identify the implications of this on your audit report for 31 March 2020.