Check your answer
Write your response and explain your reasoning.
Linden Peak Instruments copied last year's warranty note and added two paragraphs of general risk language. It has introduced a new product this year. You have not yet compared the note with current warranty contracts, claims, or the liability estimate.
Design a review plan for the warranty terms, estimated claims cost, payments, and ending liability. For each, name the evidence to obtain, who could supply it, and the comparison to make with the statements or note. Include units, periods, note location, a preparer, a reviewer, and how to track missing evidence. Explain why neither copying last year's text nor adding paragraphs establishes that the note is correct. Identify the need to check current disclosure requirements; no live research or final disclosure wording is required here.
Compare your reasoning with the worked answer
For the terms, obtain current customer agreements from sales and compare them with the note. For the estimate, obtain the current calculation and supporting sales and claims data from the accountant responsible for it. For payments and the ending liability, reconcile approved claims and cash records to the liability schedule and balance sheet. Keep units and periods consistent. Identify where each amount or explanation appears in the note.
Assign an accountant to prepare the comparison and the controller to review it. Record missing evidence and changes in products, terms, or estimates. Research the applicable disclosure requirements and record exact current references before approving the note. This exercise does not supply those references or ask you to invent them.
Remove general language that obscures the company's facts, but retain required information. Last year's wording and this year's paragraph count do not prove that the current note is complete or accurate.