It is 1 July 20X5. You are the audit manager responsible for the audit of Happy Co, a long-established limited liability company. Happy Co manufactures and sells furniture and home furnishings through retail stores, online and home catalogues via mail order. The draft financial statements for the year ended 28 February 20X5 show profit before taxation of $3.2 million (20x4 - $2.9 million) and total assets of $36.4 million (2074 - $33.0 million).
Exhibit 1 - Outstanding points Most of the audit fieldwork is complete, but there are two outstanding issues that require your attention before you can start to draft your auditor's report.
Issue 1 - Happy Co sources wood for its furniture from a number of sustainable plantations. Each plantation consists of trees, a sawmill and a storage facility. During the year ended 28 February 20X5, there was a fire at one of its plantations, which had a carrying amount of $1.6 million in the draft financial statements. The audit senior was told by management that although this was significant, there would be no impact on the company's going concern status. However, to ensure maximum transparency, the management has decided to include a disclosure note about the fire but not to make any other amendments to the financial statements.
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