Question - DelRay has placed deposits with an overseas supplier totaling $340 000 for the manufacture of specially branded goods on 14 May 2012. On 27 May 2012 the supplier closed due to civil unrest in the country. Expert opinion obtained on 28 July 2012 stated that it was unlikely that the deposit would be recovered. DelRay purchased over $3 million worth of branded products from this supplier ever year. The year-end for the DelRay audit is 30 June 2012, and the audit report is due to be signed on 14 August 2012.
Required -
• Is the event material?
• What is the appropriate treatment of this item in the financial report?
• What audit report would be appropriate if the directors of DelRay refuse to change the financial report?