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The finance director of Spider Spirals Co has informed you that he is not proposing to make an adjustment for the trade payables payment run made on 3 November, as the total payment of $490,000 would only require a change to trade payables and the bank overdraft, both of which are current liabilities.
(c) Discuss the issue and describe the impact on the auditor’s report, if any, should this issue remain unresolved.
It’s 6% of Liabilities so it’s material I understand that but in keeping purchase ledger open an extra week does that not have an effect on COS and thus understate profit? Making it pervasive as it’s altering other areas of the F.S.??
Please help
Many thanks!!!
Think of pervasive as the financial statements as a whole – yes understatement of liabilities means overstatement of profits and so both SoFP and SoPL are both affected (that is the nature of double entry) – but if in qualifying the audit opinion the auditor says “trade payables should be x and profit should be y” the reader can understand the impact that this misstatement has.
It doesn’t have non-current assets or current assets or revenue or the analysis/disclosure of any of these things in the notes – so it is not pervasive.
Oh Ok. Thank you SO much!!!
So would you say you get qualified except for opinions for these questions most of the time? I just did another one where the misstatement was material but not pervasive according to your answer and it was correct!
I am SO pleased!!!
In the real world adverse opinions and disclaimers of opinions are extremely rare (who would invest in a company with such a “bad” opinion? surely the shareholders would remove the directors?)
I would say they exist more in theory (in exam questions) than they do in the real world.
You may be interested to know that in practice (you wouldn’t get this in AA exam) you could have multiple matters on which to give an “except for” opinion and even combining them (“except for this and except for that and except for the other”) the opinion is still only qualified – not adverse 🙂
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