Question

1. The auditors identified an adjusting entry during a 2017 audit

Accounts receivable 13k

Sales 13k

Cost of goods sold 7k

Inventory 7k

If unadjusted, how will this 2017 misstatement be considered by the auditor in evaluating the materiality at the conclusion of the 2018 financial statement audit?

Answer 1

If Sales and Accounts receivable of Rs. 13000 not shown in the financial statements of 2017 that means sales are sort by 13000.

Sales impact the following in the Financial Statemets:

Profit and Loss Position, Accounts receivable if sales are on credit basis/ cash Accounts if sales are on cash basis, inventory valuation, cost of good sold etc.

if sales and accounts receivable of Rs. 13000 not shown in 2017, then in 2018 auditor pass a correction entry:

Sales A/c dr 13K

To Accounts Receivables 13K

In year 2018, Auditor add the sales of 13000 as prior period adjustment and also add 13000 in accounts receivable as prior period receivables. Also give a comment on this in auditors report.

Cost of good sold and Inventory not shown shown in year 2017 will also be shown in 2018 as prior period adjustments.