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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Completion and final review

Rowan & Co is auditing Delta Ltd, whose year end is 31 December 20X5. The financial statements were approved and the auditor's report dated 10 March 20X6. On 20 February 20X6 a major customer, whose balance existed at the year end, went into liquidation and the receivable will not be recovered. Under ISA 560, which category of event is this and how should it be treated?

It is an adjusting event, so the receivable should be written off in the 20X5 financial statements. The customer's liquidation after the year end gives evidence of a condition that existed at the reporting date, and it occurred before the auditor's report date, so adjustment rather than mere disclosure is required.

  1. AA non-adjusting event that should be disclosed only in the notes
  2. BAn adjusting event; the receivable should be written off in the 20X5 financial statementsCorrect
  3. CAn event occurring after the date of the auditor's report, requiring no action
  4. DA non-adjusting event that requires an emphasis of matter paragraph only

Explanation

The liquidation provides evidence of a condition (customer insolvency) that existed at the reporting date, so it is an adjusting event occurring between the period end and the report date. The financial statements should be adjusted. Disclosure only is wrong because the condition existed at the year end.

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