MTy Bhd has two issues identified by auditors relevant to events after the reporting period for the year ended 31 December 2017 as follows: During the audit, the auditor has discovered a material fraud committed by the company’s Accounts Officer. Investigations revealed that a total of RM250,000 of the trade receivables as shown in the statement of financial position at 31 December 2017 was paid and the money has been embezzled by the Accounts Officer. The auditor revealed that RM105,000 was embezzled in the year to 31 December 2016 and the balance in the current year. MTy Bhd has not covered insurance for the loss, thus, the amount of RM250,000 is not recoverable. MTy Bhd is being sued by an employee who lost a hand in an accident while at work on 1 June 2017. The company is contesting the claim as the employee was not following the safety procedures. Accordingly, the financial statements include a note of a contingent liability of RM103,000 for personal injury damages. On 10 January, a decided case involving another company where a similar injury was sustained, a settlement figure of RM300,000 was awarded by the court. Although the injury was similar, the circumstances of the accident in the decided case are different from those of MTy Bhd’s case. REQUIRED: Explain how the TWO (2) issues above should be dealt in accordance with MFRS 110 Events After the Reporting Period. Prepare required journal entries if necessary.

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN:9781305080577

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter17: Other Services Provided By Audit Firms

Section: Chapter Questions

Problem 52RSCQ

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MTy Bhd has two issues identified by auditors relevant to events after the reporting period for the year ended 31 December 2017 as follows:

During the audit, the auditor has discovered a material fraud committed by the company’s Accounts Officer. Investigations revealed that a total of RM250,000 of the trade receivables as shown in the statement of financial position at 31 December 2017 was paid and the money has been embezzled by the Accounts Officer. The auditor revealed that RM105,000 was embezzled in the year to 31 December 2016 and the balance in the current year. MTy Bhd has not covered insurance for the loss, thus, the amount of RM250,000 is not recoverable.
MTy Bhd is being sued by an employee who lost a hand in an accident while at work on 1 June 2017. The company is contesting the claim as the employee was not following the safety procedures. Accordingly, the financial statements include a note of a contingent liability of RM103,000 for personal injury damages. On 10 January, a decided case involving another company where a similar injury was sustained, a settlement figure of RM300,000 was awarded by the court. Although the injury was similar, the circumstances of the accident in the decided case are different from those of MTy Bhd’s case.

REQUIRED:

Explain how the TWO (2) issues above should be dealt in accordance with MFRS 110 Events After the Reporting Period. Prepare required journal entries if necessary.

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