[Mike J]

Hello all

I’m a little confused about what happens when you (the external auditor) suggests making an adjusting journal entry–eg) client needed to depreciate more and reduced from inventory items that were consigned.

I’ve seen the following asked in many forms–given those two examples, what are the effects of the necessary adjustments on Current Assets, Current Liabilities, Equity & Income before tax considerations?

Would you touch Retained Earnings? eg) Dr R/E, Cr Acc Depr & Dr Inventory, Cr R/E OR would the adjustments be Dr Depr Exp, Cr Acc Depr & Dr Inventory, Cr COGS? In other words, would the examiners assume that we the external auditors would be auditing BEFORE the F/S are issued (eg don’t use R/E to adjust the books)?

And, how would Income before tax considerations be affected by the changes?

I’d greatly appreciate clarification on this.

AUD - 90
BEC - 79
FAR - 77
REG - 77

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