Reference no: EM133171874
Question - You have finished the fieldwork for the audit of the December 31, 2021 financial statements and are about to write up the file for the audit partner in charge of the life. So far, any problems that arose were dealt with easily. Management agreed to the changes you proposed, and you expect to issue an unqualified option. However, two events have just occurred.
First, the company received a notice from the government that it had issued a recall of all wheels manufactured by the company between June 15, 2021 and September 15, 2021, as it appeared that the wheels had some major detect that had caused several accidents over the past six months. The lawsuit claims could be highly material.
Second, the December 31, 2021 financial statement shows land and buildings at fair value of $15.7 million. As part of your subsequent events procedures, you become aware that the company sold the property in January 2022 when an independent third party made an unexpected offer of $19.3 million. The difference between the sale price and the amount stated in the financial statement (which has not been adjusted) is material.
Required -
a. Explain the effect these two events will have, if any, on the financial statement in your audit.
b. If the sale of land and building is not adjusted or disclosed by the client in the financial statement, what type of audit opinion would you issue. Explain the answers.
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