ExpertACCA · Question 06 · Review and Reporting
SECTION A - CASE 2: GREENYIELD AGRI-COOP
GreenYield Agri-Coop is a large agricultural cooperative. You are the audit senior for the year ended 30 September 20X5.
During the audit, you note the following:
- A severe, unprecedented drought during the summer of 20X5 has decimated crop yields, raising significant going concern issues.
- On 15 November 20X5, a major customer of GreenYield, who owed $1.2m at the year-end, declared bankruptcy due to a fraud discovered in October 20X5.
- Management has prepared cash flow forecasts for 12 months from the date of approval of the financial statements, showing a severe cash shortage unless a bank loan is renegotiated.
- Management refuses to provide a written representation confirming their assessment of the cooperative's ability to continue as a going concern.
Question:
Regarding the major customer declaring bankruptcy on 15 November 20X5, how should this subsequent event be treated in the financial statements for the year ended 30 September 20X5?
SECTION A - CASE 2: GREENYIELD AGRI-COOP
GreenYield Agri-Coop is a large agricultural cooperative. You are the audit senior for the year ended 30 September 20X5.
During the audit, you note the following:
- A severe, unprecedented drought during the summer of 20X5 has decimated crop yields, raising significant going concern issues.
- On 15 November 20X5, a major customer of GreenYield, who owed $1.2m at the year-end, declared bankruptcy due to a fraud discovered in October 20X5.
- Management has prepared cash flow forecasts for 12 months from the date of approval of the financial statements, showing a severe cash shortage unless a bank loan is renegotiated.
- Management refuses to provide a written representation confirming their assessment of the cooperative's ability to continue as a going concern.
Question:
Regarding the major customer declaring bankruptcy on 15 November 20X5, how should this subsequent event be treated in the financial statements for the year ended 30 September 20X5?
Answer options:
As an adjusting event, requiring the $1.2m receivable to be written off in the 30 September 20X5 financial statements.
As a non-adjusting event, requiring disclosure in the notes to the financial statements if material.
As an adjusting event, but only requiring a provision for 50% of the debt.
It requires no adjustment or disclosure as the event occurred after the reporting date.
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