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Scenario extract: There was a fire in a warehouse and inventory of 10m was damaged and this has been written down to 1m scrap value.
I don’t understand what is the audit risk here. Answer says it should be charged to profit or loss. As which item ??
Audit risks (given the information you have supplied):
When was the fire? Was it before year-end or after?
Is $1m a net realisable value?
Is there any insurance compensation receivable?
If there is really a loss of $9m without compensation, the appropriate treatment is to charge it to P&L. Call it fire loss in the notes if you want to. Has it been charged?
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