18. When an auditor performed an inventory count at a privately owned medical su
ID: 370707 • Letter: 1
Question
18. When an auditor performed an inventory count at a privately owned medical supply company, it observed that some of the waste from radioactive isotopes produced at that facility three years ago appeared to have leaked into the surrounding soil. The auditor was concerned that these leaks might affect the underground water supply in the com- munity. The company states in its annual audited reports that it is a “model citizen, concerned with maintaining a safe workplace for its employees and a pristine environment for all citizens.”
a. Do the facts discovered by the auditor affect the client’s balance sheet? Explain?
b. Besides possibly adjusting the client’s financial statements, what else should the auditor do, if anything? Explain?
Explanation / Answer
a. The facts discovered by editor affect the client's balance sheet as if the company would have taken steps to curb down the spreading of of this isotopes in the soil or would have spent some amount of money in treating the affected soil then they could show it as an long term investment and it can appear on the asset side of the balance sheet. It can be considered as long term investment because it will help the company in earning goodwill as the company can potray itself to be sustainable and thereby earn and retain more and more of customers as well a s employees.
b. Along with adjsuting the financial statements the auditor should also advice the company to set up a treatment plant and treat the soil which has been damaged due to radiao active isotopes and also take other effective measures to curb further leaking of these radioactive isotopes. Ethically it is the right thing which an auditor should do and take the matter strictly so that the company actually adheres to what is expected of them to do.
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