Question

This relates to Subsequent Events for Audit

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Tanners Ltd is a wholesaler of packaging products and you are about to complete the financial report audit for the year end 30 June 2015. Before you finalise your audit opinion you are considering some significant events that have recently occurred in Tanners Ltd.

Denners Ltd and Minners Ltd

Denners Ltd, a customer of Tanners, is suing the company due to being sold faulty packaging.

Denners is a food manufacturer and has claimed that as a result of unhygienic packaging supplied by Tanners it had to re-supply some products to its customers, pay them compensation for their losses and dispose of other products that were now unfit for sale. Denners has made a claim against Tanners for $450 000, which Tanners is disputing because the fault lay with a new machine recently purchased from Minners Ltd. The board of Tanners have indicated they do not intend to provide for any amounts payable to Denners as these will be recouped from Minners.

Factory fire

There was a fire at one of Tanners’ factories in late July 2015. Some machinery, raw materials and finished products were damaged in the fire. The insurance company was informed and an investigation showed that the factory supervisor was at fault by not following safety procedures, as a result the insurance company have refused to accept the claim.

Jonners Ltd

In August 2015, Tanners was informed by one of its long-standing customers, Jonners Ltd, that it was having going concern problems and that paying the amount owed to Tanners was going to be difficult. No amount has been received from Jonners since June. The directors of Tanners believe that it is not necessary to adjust the receivable balance at 30 June 2015 as Jonners has always paid them in the past.

Question:

What are auditors’ responsibilities for the events? (There's 3 events or scenarios)

1.

2.

3.

Answer 1

1) In case 1 Tanner's limited have to disclosed the Danners Ltd claim as a contingent liabilities as per accounting standard 29 ..

As per accountng standard 29 a contingent liability is a possible obligations that arises from past events and the existence of which will be confirmed only by the occurrence or non- occurence of one or more uncertain future events not wholly within the control of the enterprise.

The claim for $450000 have to be disclosed as contingent liability for the year ended 30th June 2015 .

2) In case of factory fire as it mentioned that the loss were not going to compensate by the insurance company because it was the fault of factory supervisor so it should disclosed in notes to accounts of year ended 30th June 2015 balance sheet as per above mentioned accounting standard 29.

3)As per accounting standard 4 Contingency and events occurring after balance sheet date that the events occurring after balance sheet date can be reported either by making

i. Making appropriate adjustments in the financial statements or,

ii. Through report of the approving authority .i.e. Directors report in case of companies and report of corresponding approving authority in case of other entities.

Adjusting Events: An event after the balance sheet date may require adjustment of a reported values of assets, liability, expenses , income and equity of the accounting period ,if the event is such as to provide the further Evidence of conditions that existed at the balance sheet date. Such events are adjusting events .

As per the definition of adjusting events in case of Jonners Ltd it has been found that Jonners has not paid the amount since June and it on itself is condition existing of becoming it's bankruptcy as Jonners Ltd has not make any any in payment in the past but as it has not paid since June 2015 that's baddebt of Jonners Ltd should be recognised in the balance sheet of Tanners Ltd of June 2015 as it is adjusting events as per Accounting Standard 4.