You have completed your audit of M&M Company's (a private company) 2020 financial statements. You decided to date your audit report February 15, 2021. Your audit report will only cover M&M’s 2020 financial statements. You have not been engaged to report on key audit matters (critical audit matters).

During the audit, you became aware the investment banking house, Bright & Bright, Inc. (B&B), had filed for bankruptcy on February 12, 2021. Here’s the problem. At December 31, 2020, M&M's year-end, the company had a significant ($10 million) investment in B&B's unsecured commercial paper. The commercial paper matured on January 6, 2021, but was extended for another 30 days. When the commercial paper matured again on February 6, 2021, it was again reinvested for another 30 days. As a result of the bankruptcy on February 12, 2021, M&M incurred a loss of $10 million related to its investment in B&B commercial paper. The controller of M&M stated adamantly that M&M would not record the $10 million loss in 2020. "It's clearly a Type II Event," she argued.

- Should M&M's 2020 income statement include the $10 million loss related to its investment in B&B commercial paper? Discuss the reasons for your answer.

Answer rating: 100% (QA)

Answer The auditors unqualified report includes 7 The basic elements 8 as described in paragraphs 0610 Communication regarding critical audit matters relating to the audit of the current periods finan... View the full answer