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Dear Sir,
If there is a non adjustment event, and it is not material, is it necessary to disclosed in FS?
If it is not disclosed in FS, how does it affect to audit opinion and audit report ?In my opinion, it is not necessary to disclose in FS.
If it is not disclosed in FS, audit opinion will be unmodified and audit report is unmodified,But the answer in mock practice exam is : it is necessary to disclose in FS. And as long as the appropriate disclosures have been made the auditor’s report can be issued with an unmodified opinion.
Please kindly help me to explain.
Thank you so much.
“Not material” – by the definition of material – means it does not provide relevant information to primary users so it is NOT disclosed and has NO implications for the audit opinion or auditor’s reporting.
Can you please tell me which mock practice exam you are referring to? I can only think that the matter must be material if the answer suggests that it requires disclosure.
Dear Sir,
Thank you so much for your quick reply.
I practice the mock exam by using the below link, but it is necessary account and PW to login:
fils-acca-vietnam.my-fi.co.uk.
That is the question 21a and 22b of mock exam 2.
I copy here the extract of question and answer for your reference :
Question
This scenario relates to 4 requirements.
Blue Buildit is a listed company that operates a national chain of hardware stores, selling directly to the public as well as to the building trade. In addition to the stores, the company operates a main depot holding stocks of goods for distribution to the stores and for delivery to building firms. The audit of the financial statements for the year ended 30 June 20X8 has reached the review stage and the following matters have been brought to your attention:
Fire at premises
One of the hardware stores was damaged by a fire that broke out following a period of exceptionally dry weather in August 20X8. There were no casualties, but the fire did destroy timber valued at $2m.
21(a) Explain the impact of each of these matters on the financial statements.
22(b) Discuss the potential impact of each of the above matters on the auditor’s report.Answer:
21(a): Fire at premises
This is a non-adjusting event as the conditions of the fire were not present at the year end. The amount of the loss and a description of the events surrounding the fire should be disclosed in the financial statements. The loss of $2m represents 1.6% of inventories and 3.3% of profit before tax so it is unlikely to be material to the financial statements.
21(b) Fire at premises
As long as the appropriate disclosures have been made the auditor’s report can be issued with an unmodified opinion. Should the auditors consider that this event is fundamental to the users’ understanding of the financial statements, an emphasis of matter paragraph may be required.
Thank you so much.
Such a contradictory answer cannot be correct – either it’s material – so disclose – or it’s not – so don’t(!)
If it is material AND it’s adequately disclosed, the auditor could draw attention to the note disclosing the non-adjusting event after the reporting date in an EoM.
If it’s material and NOT adequately disclosed, the audit opinion should be qualified “except for”.
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