West Midlands Smooth dairies, manufacture a range of dairy products like milk, cheese and yoghurt in one factory. The products are stored in a rented warehouse which is nearby the West Midlands Smooth factory. Products are sold to over 300 supermarkets located within a 250km radius of the company’s factory. The products have an average shelf life of ten days. The company’s financial statement year-end is 30 September 2020. It is now three months since the year end at your audit client of West Midlands Smooth and the annual audit is almost complete, but the auditor’s report has not been signed. The following events have just been brought to your attention. (Note: all these events occurred in mid-December) • Bankruptcy of a major customer representing 15% of the trade receivables on the statement of financial position. • A batch of cheese produced by the company was found to contain some chemical impurities. Over 500 customers have complained about food poisoning after eating the cheese. 150 supermarkets have stopped purchasing West Midlands Smooth’s products and another 90 are considering whether to stop purchasing from West Midlands Smooth. Lawyers acting on behalf of the customers are now presenting a substantial claim for damages against West Midlands Smooth. • A fire in the warehouse rented by West Midlands Smooth has destroyed 60% of the inventory held for resale In respect of EACH of the events at West Midlands Smooth mentioned above: State with reasons, whether or not the financial statements for the year-end require amendment and;
West Midlands Smooth dairies, manufacture a range of dairy products like milk,
cheese and yoghurt in one factory. The products are stored in a rented warehouse
which is nearby the West Midlands Smooth factory. Products are sold to over 300
supermarkets located within a 250km radius of the company’s factory. The products
have an average shelf life of ten days. The company’s financial statement year-end is
30 September 2020.
It is now three months since the year end at your audit client of West Midlands Smooth
and the annual audit is almost complete, but the auditor’s report has not been signed.
The following events have just been brought to your attention. (Note: all these events
occurred in mid-December)
• Bankruptcy of a major customer representing 15% of the trade receivables on the
statement of financial position.
• A batch of cheese produced by the company was found to contain some chemical
impurities. Over 500 customers have complained about food poisoning after eating
the cheese. 150 supermarkets have stopped purchasing West Midlands Smooth’s
products and another 90 are considering whether to stop purchasing from West
Midlands Smooth. Lawyers acting on behalf of the customers are now presenting a
substantial claim for damages against West Midlands Smooth.
• A fire in the warehouse rented by West Midlands Smooth has destroyed 60% of the
inventory held for resale
In respect of EACH of the events at West Midlands Smooth mentioned above:
State with reasons, whether or not the financial statements for the year-end
require amendment and;
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