A material fire occurs at a factory after the reporting date and relates to conditions arising after that date. What should generally be done?
Correct answer: B. Disclose the event if it is material
- A. Adjust the factory balance at the reporting date
- B. Disclose the event if it is material
- C. Ignore the event in every circumstance
- D. Recognise the loss in the earlier period
Explanation
A fire caused by conditions arising after the reporting date is generally a non-adjusting subsequent event. If material, it is disclosed because users need to know about its possible effect, but the earlier period’s balances are not normally adjusted.
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Auditing examines accounting records and financial statements to determine whether they present a reliable and fairly stated position. The subject covers audit objectives, internal controls, audit evidence, materiality, vouching, verification, working papers, auditor independence, audit reports, and the distinction between an audit and accounting or investigation.
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