ACCOUNTING
3-44. (Application of Ethical Framework, LO 4) As the auditor for XYZ Company, you discover that a material sale ($500,000 sale, cost of goods of $300,000) was made to a customer this year. Due to poor internal accounting controls, the sale was never recorded. Your client makes a management decision not to bill the customer because such a long time has passed since the shipment was made. You determine, to the best of your ability, that the sale was not fraudulent.
Required
a. Does GAAP require disclosure of this situation? Cite specific applicable standards.
b. Regardless of your answer to part (a), utilize the ethical framework developed in the chapter to determine whether the auditor should require either a recording or disclosure of the transaction. If you conclude that the transaction should be disclosed or recorded, indicate the nature of disclosure and our rationale for it.
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