The company manufactures machinery for use in the aircraft, defense and marine sectors. The audit for the year ended 30 April 2021 is almost complete. The revenue and profit before tax figures recognized in the draft financial statements are $1,437 million and $139 million, respectively (2018: $1,489 million and $175 million respectively). Audit procedures identified two sales transactions in the final quarter of the year that related to two different customers but where the goods were delivered to the same location.

Further investigations revealed that the goods were delivered to a third party, who agreed to store them until the customers were ready to receive delivery.

The goods have yet to be delivered to the customers because they are both building new facilities and neither is sufficiently progressed to receive the new machinery.

The contract terms explicitly state that Rocket Co is obliged to deliver the goods to the customers for final inspection and acceptance and the client has not agreed to any consequent amendments to these terms.

The sales invoices were raised and the revenue recognized upon dispatch of the goods to the storage facility. During discussions with the audit team, the finance director stated that the company had fulfilled its contractual obligations to provide the goods by a specified date. The revenue attributable to the two transactions totalled $87 million.

Required:

(a) Comment upon the matter described above and explain the further actions necessary before the auditor's report can be signed.

(b) Discuss the implications for the auditor's report if no adjustments are made to the financial statements.

Answer rating: 100% (QA)

a The matter described in the scenario appears to raise concerns regarding the timing of revenue rec... View the full answer