CA Inter P5 · Chapter 7 · Question 2 of 12
A fire destroyed a warehouse of Ojasvi Furnishings Ltd. on 20 April, after the 31 March year-end and before the financial statements were approved. The loss is material. The appropriate treatment is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Disclosure of the nature of the event and an estimate of its financial effect, without adjusting the year-end figures
Explanation
The fire is a condition that arose after the reporting date, so it is a non-adjusting event. If material, its nature and estimated financial effect should be disclosed. The auditor evaluates whether disclosure is adequate; a properly disclosed non-adjusting event does not require a qualified opinion, though the auditor may consider an Emphasis of Matter paragraph.
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