You are the controller of a vitamin manufacturer with about $10 million of sales and a net income of $2 million. Sales are made to wholesalers throughout the country. Your accounting team consists of three other employees who, respectively, handle accounts receivable/sales, accounts payable/inventory, and payroll.

1. The accounts payable/inventory clerk has been out for a medical procedure and the other two employees had to pick up the slack. At the December 31st end of fiscal year, everything looked good, and the books were closed, On February 28th, the auditors presented a report that contained a clean opinion. On March 10th, almost two and a half months after the year-end, a shipment of vitamins was returned. The vitamins, which were shipped on December 15th of the previous year, were found to be moldy. Because this is a major customer, the president insisted that the $100,000 purchase price be refunded. 
2. Do you restate the financial statements? 
3. What are the ramifications of your decision, both if you do restate and if you decide not to? 
4. If bonuses are involved, would that change your opinion?

Answer rating: 100% (QA)

Restating financial statements is a decision that depends on the specific circumstances and accounting principles Lets consider the options and the po... View the full answer