The following are independent situations for which you will recommend an appropriate auditor’s report:
1. Subsequent to the date of the financial statements as part of the post-balance sheet date audit procedures, a public accountant learned of heavy damage to one of a client’s two plants due to a recent fire; the loss will not be reimbursed by insurance. The newspapers described the event in detail. The financial statements and appended notes as prepared by the client do not disclose the loss caused by the fire.
2. A public accountant is engaged in the examination of the financial statements of a large manufacturing company with branch offices in many widely separate cities. The public accountant was not able to count the substantial un deposited cash receipts at the close of business on the last day of the fiscal year at all branch offices.
As an alternative to this auditing procedure used to verify the accurate cut off of cash receipts, the public accountant observed that deposits in transit as shown on the year-end bank reconciliation appeared as credits on the bank statement on the first business day of the new year. The public accountant was satisfied as to the cut off of cash receipts by the use of the alternative procedure.
3. On January 2, 2013, the Retail Auto Parts Company Limited received a notice from its primary supplier that effective immediately all wholesale prices would be increased by 10 percent. On the basis of the notice, Retail Auto Parts revalued its December 31, 2012, inventory to reflect the higher costs. The inventory constituted a material proportion of total assets; however, the effect of the revaluation was material to current assets but not to total assets or net income. The increase in valuation is adequately disclosed in the footnotes.
4. E-lotions.com, Inc. is an online retailer of body lotions and other bath and body supplies. The company records revenues at the time customer orders are placed on the website, rather than when the goods are shipped, which is usually two days after the order is placed. The auditor determined that the amount of orders placed but not shipped as of the balance sheet date is not material.