Audit Risk Auditor’s response

Request management prepare year-ended payables ledger control account reconciliation and investigate any variations.

Current asset of $360000 has been included within statement of profit or loss and assets. It represents anticipated pay out from liquidators handling bankruptcy of a customer who owed $0.9m. The sum of $0.9m was written off in the prior year accounts. To comply with IAS 37 Provisions Contingent liability and assets, this should not be recognized until it is virtually certain. Company may be overstated profits and current assets.

Discuss with the management whether notification of payment has been received or not. If this is virtually certain, treatment is correct. If this is not virtually certain, auditor should request to remove this from profit and receivables.