The Fieldwork for the December 31, 2011 Audit of Schmidt

question 96

Short Answer

The fieldwork for the December 31, 2011 audit of Schmidt Corporation ended on March 17, 2012. The financial statements and auditor's report were issued and mailed to stockholders on March 29, 2012. In each of the material situations (1 through 5) below, indicate the appropriate action (a, b, c, d, or e). The possible actions are as follows:
a. Adjust the December 31, 2011 financial statements.
b. Disclose the information in a footnote in the December 31, 2011 financial statements.
c. Request the client revise and reissue the December 31, 2011 financial statements. The revision should involve an adjustment to the December 31, 2011 financial statements.
d. Request the client revise and reissue the December 31, 2011 financial statements. The revision should involve the addition of a footnote, but no adjustment, to the December 31, 2011 financial statements.
e. No action is required.
The situations are as follows:
________ 1. On April 5, 2012, you discovered that, on February 16, 2012 a flood destroyed the entire uninsured inventory in one of Schmidt's warehouses.
________ 2. On February 17, 2012, you discovered that, on February 16, 2012, a flood destroyed the entire uninsured inventory in one of Schmidt's warehouses.
________ 3. On February 17, 2012, you discovered that, on November 30, 2011, a flood destroyed the entire uninsured inventory in one of Schmidt's warehouses.
________ 4. On April 5, 2012, you discovered that, on March 30, 2012, a fire destroyed one of Schmidt's 13 plants.
________ 5. On April 7, 2012, you discovered that a debtor of Schmidt went bankrupt on January 6, 2012, due to gradual declining financial health.

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Definitions:

Separate Markets

Distinct spaces or platforms where goods, services, or financial instruments are traded independently, often with little to no interaction or effect on each other.

Resold

Refers to an item being sold again after its initial purchase.

Monopolist's Profits

The excess earnings a monopolist achieves, derived from the difference between its revenues and costs, due to its unique market power and lack of competition.

Demand Segmentation

The process of dividing a market into distinct groups of buyers with different needs, characteristics, or behaviors.