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The Field Work for the December 31, 2011 Audit of Pumpkin

Question 84

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The field work for the December 31, 2011 audit of Pumpkin Corporation ended on March 13, 2012. The financial statements and auditor's report were issued and mailed to stockholders on March 23, 2012. In each of the situations below, select from the list at the end of the problem the appropriate action to be taken by the auditor. Assume all situations are material.

Premises:

Responses:

On April 5, 2012, you discovered that on February 16, 2012, a flood destroyed the entire uninsured inventory in one of Pumpkin's warehouses.

Adjust the December 31, 2011 financial statements.

On February 17, 2012, you discovered that on February 16, 2012, a flood destroyed the entire uninsured inventory in one of Pumpkin's warehouses.

Disclose the information in a footnote in the December 31, 2011 financial statements

On February 17, 2012, you discovered that on November 30, 2011, a flood destroyed the entire uninsured inventory in one of Pumpkin's warehouses.

Request the client revise and reissue the December 31, 2011 financial statements. The revision should involve an adjustment to the December 31, 2011 financial statements.

On April 5, 2012, you discovered that on March 30, 2012, a fire destroyed one of Pumpkin's 10 plants.

Request the client revise and reissue the December 31, 2011 financial statements. The revision should involve the addition of a footnote, but no adjustment, to the December 31, 2011 financial statements.

On April 7, 2012, you discovered that a debtor of Pumpkin went bankrupt on January 6, 2012.

No action is required.

On January 16, 2012, a lawsuit was filed against Pumpkin for a patent infringement action that allegedly took place in early 2001. In the opinion of Pumpkin's attorneys, there is a reasonable (but not probable) danger of a significant loss to Pumpkin.

On February 19, 2012, Pumpkin settled a lawsuit out of court that had originated in 2000 and is currently listed as a contingent liability.

Premises:

On April 5, 2012, you discovered that on February 16, 2012, a flood destroyed the entire uninsured inventory in one of Pumpkin's warehouses.

On February 17, 2012, you discovered that on February 16, 2012, a flood destroyed the entire uninsured inventory in one of Pumpkin's warehouses.

On February 17, 2012, you discovered that on November 30, 2011, a flood destroyed the entire uninsured inventory in one of Pumpkin's warehouses.

On April 5, 2012, you discovered that on March 30, 2012, a fire destroyed one of Pumpkin's 10 plants.

On April 7, 2012, you discovered that a debtor of Pumpkin went bankrupt on January 6, 2012.

On February 19, 2012, Pumpkin settled a lawsuit out of court that had originated in 2000 and is currently listed as a contingent liability.

Responses:

Adjust the December 31, 2011 financial statements.

Disclose the information in a footnote in the December 31, 2011 financial statements

Request the client revise and reissue the December 31, 2011 financial statements. The revision should involve an adjustment to the December 31, 2011 financial statements.

No action is required.

Correct Answer:

Premises:

Responses:

On April 5, 2012, you discovered that on February 16, 2012, a flood destroyed the entire uninsured inventory in one of Pumpkin's warehouses.

On February 17, 2012, you discovered that on February 16, 2012, a flood destroyed the entire uninsured inventory in one of Pumpkin's warehouses.

On February 17, 2012, you discovered that on November 30, 2011, a flood destroyed the entire uninsured inventory in one of Pumpkin's warehouses.

On April 5, 2012, you discovered that on March 30, 2012, a fire destroyed one of Pumpkin's 10 plants.

On April 7, 2012, you discovered that a debtor of Pumpkin went bankrupt on January 6, 2012.

On February 19, 2012, Pumpkin settled a lawsuit out of court that had originated in 2000 and is currently listed as a contingent liability.