Question 1

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:
1. A severe, unprecedented drought during the summer of 20X5 has decimated crop yields, raising significant going concern issues.
2. 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.
3. 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.
4. 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?

Accepted Answer

Determine if the condition that caused the bankruptcy existed at the reporting date (30 Sept). The prompt states the bankruptcy was due to a fraud discovered in October. Therefore, the condition arose post year-end, making it non-adjusting.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Assuming all customer bankruptcies shortly after year-end are automatically adjusting events. You must look at the *cause* of the bankruptcy.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA AA — Audit and Assurance Practice Exam 5

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