Reference no: EM132690836

You are the auditor for Pri Ltd (Pri) for the year ended 30 June 2018. In July 2018, one of Pri's largest customers, Tech Pty Ltd (Tech), went into bankruptcy after the court upheld a large penalty against the company for engaging in misleading conduct. Pri's accounts receivable includes an amount of $8 million owing from Tech, of which only 10% is now expected to be collectible.

Problem 1: Which of the following actions would you require Pri's management to undertake?

a) Take no action in 2018 and release 2018 financial report as prepared, recording $7.2 million loss in the 2019 financial report.

b) Report $7.2 million loss in relation to uncollectible debts in the events after balance date note to the 2018 financial report.

c) Record $3.6 million loss in relation to uncollectible debts in each of the 2018 and 2019 financial reports.

d) Adjust the 2018 financial report to record the $7.2 million loss and bring down the amount owing from Tech accordingly.

Problem 2: If the amount in question is material and Pri's management do not take the required course of action you have requested, which of the following audit opinion would be most appropriate for the audit of Pri for the financial year ending 30 June 2018?

a) Unmodified opinion.

b) Unmodified opinion with emphasis of matter paragraph.

c) Qualified opinion.

d) Disclaimer of opinion.