Case Study

You are the manager responsible for the audit of Lamia Ltd, a manufacturing company with a year ended 30 September 2011. The audit work has been completed and reviewed and you are due to issue the audit report in three days. The draft audit opinion is unmodified. The financial statements show turnover for the year ended 30 September 2011 of Tk.15 million, net profit of Tk.3 million, and total assets at the yearend are Tk.80 million. The finance director of Lamia Ltd telephoned you this morning to tell you about the announcement yesterday, of a significant restructuring of Lamia Ltd, which will take place over the next six months. The restructuring will involve the closure of a factory, and its relocation to another part of the country. There will be some redundancies and the estimated cost of closure is Tk.250,000. The financial statements have not been amended in respect of this matter.

Required:

In respect of the announcement of the restructuring: (hint: Audit Report)

(i) Comment on the financial reporting implications, and advise the further audit procedures to be performed.

(ii) Recommend the actions to be taken by the auditor if the financial statements are not amended.