Roland Company, a retail store, has utilized your services as independent auditor for several years. During the current year, the company opened a new store, and in the course of your annual audit, you verify the cost of the fixtures installed in the new store by examining purchase orders, invoices, and other documents. This audit brings to light an understated invoice nearly a year old in which a clerical error by the supplier, Western Showcase, Inc., caused the total of the invoice to read $28,893.62 when it should have read $82,893.62. The invoice was paid immediately upon receipt without any notice of the error, and subsequent statements and correspondence from Western Showcase, Inc., showed that the account with Roland Company had been paid in full. Assume that the amount in question is material in relation to the financial position of both companies.
a. What action should you take in this situation?
b. If the client should decline to take any action in the matter, would you insist that the unpaid amount of $54,000 be included in the liabilities shown on the balance sheet as a condition necessary to your issuance of an unqualified audit report?
c. Assuming that you were later retained to make an audit of Western Showcase, Inc., would you utilize the information gained in your audit of Roland Company to initiate a reopening of the account with that company?

  • CreatedOctober 25, 2014
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