- 5 Marks
AAA – Nov 2023 – L3 – Q5c – Reporting
Comment on a draft audit report regarding a warranty provision disclosure.
Question
c) On 1 July 2022, Obidi Ltd introduced a ten-year warranty on all sales of its cooking equipment. Total sales of the cooking equipment for the year ended 31 March 2023 amounted to GH¢2.5 million. The draft Auditor’s Report for the year ended 31 March 2023 showed revenue of GH¢5.6 million.
The notes to the financial statements disclosed that since the introduction of the warranty, Obidi Ltd’s cooking equipment has been guaranteed to be free from defects under normal household use. As a result, no provision was recognised, as the amount of the obligation cannot be measured with sufficient reliability.
The draft report on the Financial Statements of Obidi Ltd for the year ended 31 March 2023 was unmodified.
Required: As the Managing Partner, comment on the draft report before you. (5 marks)
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