MCQ of the day- DSP Chartered Accountants have been appointed statutory auditors of Flakes Private L

MCQ of the day-

DSP Chartered Accountants have been appointed statutory auditors of Flakes Private Limited for
the year 2016-17. The company’s net profit has declined by 5% as compared to previous year in
spite of increase in sales. On verification of company’s profit & loss account it is noticed that in the
current year a huge amount is debited as loss on sale of fixed assets due to which the profits has
reduced. The auditor discussed the matter with management and was told that since the lot of
fixed assets were lying idle due to their non-working condition, they have been sold at less than
their written down value. As an auditor do you think that the fact regarding disposal of assets
should be disclosed in auditor’s report/ notes to accounts?

a) If the assets has been sold as per company’s policy and under applicable Financial Reporting
framework, then separate disclosure is not required in auditor’s report/ notes to accounts.

b) As the sale of assets has an impact on profit for the current year, it should be disclosed in the
notes to account of the Financial Statements.
c) Even if the assets has been sold as per company’s policy and under applicable
Financial
Reporting framework, the auditor should disclose the facts in Emphasis of Matter Paragraph
of Audit Report as the loss booked in Profit & Loss account has a material impact on the net
profit of the company.

d) As the loss on sale of fixed assets is debited in Profit & Loss Account as per Accounting
Standard, there is no requirement of disclosure of the same in any report.