Why Auditor Needs to Enquire about Dispute with Customer when Advance is Received:

1. Confirmation of Advance:
Auditors need to ensure that the advance received from the customer is accurately recorded in the entity's financial statements. This involves confirming the amount of advance received and verifying that it has been properly accounted for.

2. Existence of Dispute:
Auditors need to inquire about any potential disputes with the customer to assess the risk of the advance being disputed or potentially refunded. This is important as a dispute with the customer could result in the advance being reversed or adjusted, impacting the entity's financial position.

3. Impact on Financial Statements:
If there is a dispute with the customer regarding the advance received, it could have a significant impact on the entity's financial statements. Auditors need to understand the nature of the dispute, the likelihood of resolution, and the potential financial implications.

4. Assessing Going Concern:
Disputes with customers over advances received can also raise concerns about the entity's ability to continue operating as a going concern. Auditors need to consider the impact of unresolved disputes on the entity's ability to meet its obligations and continue operating in the future.

5. Compliance and Disclosure:
Auditors also need to ensure that the entity is in compliance with relevant accounting standards and disclosure requirements related to advances received from customers. Any disputes or potential liabilities arising from the advances need to be properly disclosed in the financial statements.