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I got this point.
Actually there is an error in Kaplan Kit.
This question appeared in December 2008 exams, question number 3.It is mentioned in the question that “The land has never been used by Hawk Ltd for business purposes”.
But this sentence is missing from the Kaplan Kit.
@gromit: Thank you very much for your assistance. 🙂
I had the same treatment in mind, but I got confused after solving BPP Revision Kit ‘question no 96- ZeeDiem’.– Specifically part (b) of this question
In this question, the Entity is under investigation for Chemical leaked into a local rive that occurred ‘after the reporting date’ and this investigation requires only disclosure as it is non-adjusting event (Part a of the question).In part b,it is stated that after the report has been ‘signed by the auditor’, the Environmental Agency has imposed a fine of $900,000 (this amount is material).
According to the answer given in BPP kit, although auditors has no obligation to perform audit procedures regarding the financial statements after their report has been singed. The auditor must consider whether accounts need amendment. In this case as the amount of the fine imposed is material, the accounts should be amended. If management amends the accounts, the auditors must issue a amended report.
If management does not amend the FS, the auditor will need to take actions to prevent reliance on the auditor’s report.(This part (b) got me confused and I am still confused)
@kayfabuacca: Although I am still confused about the treatment of this particular situation…
But I think if the amount of settlement payment/penalty requires an adjustment and management refuses to do so, then a ‘Modified’ opinion will be issued. An ‘Adverse’ opinion will only be issued if misstatement is both Material and Pervasive (e.g: Entity can continue as a going concern)