(ii) On 1 July 2006 Petrie introduced a 10-year warranty on all sales of its entire range of stainless steelcookware. Sales of stainless steel cookware for the year ended 31 March 2007 totalled $18·2 million. Thenotes to the financial statements disclose

(ii) On 1 July 2006 Petrie introduced a 10-year warranty on all sales of its entire range of stainless steel

cookware. Sales of stainless steel cookware for the year ended 31 March 2007 totalled $18·2 million. The

notes to the financial statements disclose the following:

‘Since 1 July 2006, the company’s stainless steel cookware is guaranteed to be free from defects in

materials and workmanship under normal household use within a 10-year guarantee period. No provision

has been recognised as the amount of the obligation cannot be measured with sufficient reliability.’

(4 marks)

Your auditor’s report on the financial statements for the year ended 31 March 2006 was unmodified.

Required:

Identify and comment on the implications of these two matters for your auditor’s report on the financial

statements of Petrie Co for the year ended 31 March 2007.

NOTE: The mark allocation is shown against each of the matters above.