ACC-415 WA2 QUESTIONS

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ACC-415
WA2 Review Question 17-4
The types of subsequent events relevant to financial statement audits are events that provide additional
evidence about conditions that existed at the date of the balance sheet and affect the estimates that are
part of the financial statement preparation process. These types of events require adjustments to the
financial statements. An example of this type of event would be accounts receivables that are deemed
uncollectible.
The second type is events that provide evidence about conditions that did not exist at the date of the
balance sheet but that arose subsequent to that date, these do not require adjustments to the financial
statements. An example of this type of event would be the loss of plant inventories due to a major
catastrophe such as a fire, hurricane, tornado, or flood. Review Question 17-5
The auditor may dual date an audit report if a subsequent event is disclosed in the financial statements
after completion of the field work but before the financial statements were issued. This limits the
auditor’s culpability for events that occurred prior to the subsequent date on which the auditor obtained
sufficient evidence. Review Question 17-9
The three steps in the Going Concern Evaluation are:
1. Consider whether the results of audit procedures performed during the planning, performance,
and completion of the audit indicate whether there is substantial doubt about the entity’s ability
to continue as a going concern for a reasonable period of time which is generally one year.
2. If there is substantial doubt, the auditor should obtain information about management’s plans to
mitigate the going concern problem and assess the likelihood that such plans can be
implemented.
3. If the auditor determines, in respect to management’s plans, that there is substantial doubt
about the ability of the entity to continue as a going concern, if substantial doubt exists, they
should consider the adequacy of the disclosures about the entity’s ability to continue and
include an explanatory paragraph in the audit report. Review Question 17-10
Financial Conditions – exmaples are negative net work and negative cash flow Other Financial Difficulties – Denial of trade credit by suppliers and defaulting on loans
Internal Matters – Work stoppages and dependence on the success of one particular project
External Matters – Legal Proceedings and the loss of a major customer or supplier Problem 17-25
1. 2.
3.
4.
5. In this case, the amount that was previously considered as collectible would be considered
material. Since it is unlikely that this account will be paid, a provision for bad debt would need
to be created.
In this case, the tax liability for the company would be decreased and an adjustment would be
made to deferred tax liabilities.
This would not affect the financial statements for the year ended December 31, 2013 as it took
place in 2014.
This would not affect the financial statement for the year ended December 31, 2013 because it is
not a financial transaction.
This would not affect the financial statement for the year ended December 31, 2013 because it is
not a financial transaction. Discussion Case 17-29
a. This type of contingency would be classified as probably because it’s a future event that is likely
to occur – The EPA has listed Ceramic Crucibles as one of the probable parties for the costs and
cleanup. Since the outcome is reasonably possible or cannot be estimated, a disclosure of the
contingency is made in the footnotes.
b. Yes, this amount would be considered material. The current estimates of cleanup being close to
$100 billion would indicate that this contingent liability has the potential to be a huge loss to
Ceramic Crucibles.
c. I would collect documents indicating that Ceramic Crucibles followed the appropriate steps to
dispose of toxins generated in production, documents that prove that Ceramic Crucibles
switched to using lead free mud in the manufacturing of its crucibles, the affidavits stating that
wastewater was discharged properly, and the documents reflecting that the Durango site had
been placed on the National Priorities List.
d. Yes, because the investigation reflects that this contingent liability would have a profound effect
on the financial statements.

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