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hello gromit
i have a quick question regarding events related to a warehouse fire. suppose if there is a fire in warehouse post year end and all of the inventory gets destroyed then i understand that disclosure is required in this instance as its likely to be materiel and its a non adjusting event.
however what if all of that inventory was insured? do we still need to show disclosure and please tell me what will be reporting implications?
i am presuming that if all of the inventory was insured that one audit procedure would be to confirm this insurance from the insurance company.
is that right?
I think you wouls still disclose. Production/sales will be disrupted even if the inventory is insured. The auditor would have to estimate the effect of teh fire (inventory and warehouse) and would have to ensure that insurance would cover it.
if the inventory is not insured and all of it is burnt, then the NRV would be zero. Thus would it not be incorrect to not adjust the same in the statement of financial position?
If the fire happened after year end, the inventory existed at year end so there is no adjustment to the invnetory in the FS.
This is a fundamental point about subsequent events
what if the damage is such huge that the company might face going concern problems? what effects would that have?
Going concern doubt is usually an emphasis of matter paragraph referring to a note in the FS.
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