ACC311 Assignment 3 Solution Spring 2017

Scenario: You are running your own chartered accountancy firm named as ABC & Co. Your firm has been nominated as an external audit firm for two companies namely Weddingly and Headingly. Weddingly is a hotel located in Metropolitan City. While on the other hand, Headingly is the food supplier of Weddingly located in Urban City. Both companies close the books of accounts at the same year end. Just before closing the books of accounts at year end, a large number of guests who were attending a wedding ceremony at Weddingly hotel has been facing health issues due to poor food served to them. The host of the wedding ceremony decided to take legal action against the hotel. While the hotel management has taken the action against its food supplier. Neither food supplier nor the hotel are agreed to admit the liability. The hotel offered the host to compensate his guests out of the court. According to the lawyers of both the parties – the host and Weddingly, negotiations are going well but they refused to confirm it in writing except the fact that huge cost is involved in this process. All the cost involved in this process is found to have material impact on financial statements of both the companies.

Required: Being an auditor you are required to identify five difficulties (with proper justification and detail) that you can foresee in getting sufficient audit evidence for provisions, contingent assets and liabilities during the audit of both the companies.