Question

Consider each of the following independent and material situations, identified below (i-v). In each case: • the balance date is 30 June 2020; • the field work was completed on 12 August 2020; • the Directors’ Declaration and the Audit report were signed on 19 August 2020; • the completed financial report accompanied by the signed Audit report was mailed to the shareholders on 25 August 2020. (i) On 29 September 2020, you discovered that a debtor at 30 June 2020 had gone bankrupt on 1 September 2020. The debt had appeared collectible at 30 June 2020 and 19 August 2020. (ii) On 12 August 2020, you discovered that a debtor had gone bankrupt on 1 August 2020. The sale took place on 15 July 2020. The cause of the bankruptcy was a major uninsured fire at one of the debtor’s premises on 1 July 2020. (iii) On 13 August 2020, you discovered that a debtor at 30 June 2020 had gone bankrupt on 5 August 2020. The cause of the bankruptcy was an unexpected loss of a major lawsuit issued against the debtor on 10 June 2020. (iv) On 20 August 2020, the company settled a legal action out of court that had originated in 2016 and was listed as a contingent liability at 30 June 2020. (v) On 1 September, you found a letter dated 15 August with a $2 million fine from Environmental Protection Agency. The letter stated that company had illegally dumped chemicals on 15 May 2020. Required: 1. For each of the events described above (i-v), select the appropriate action from the list below, and justify your response. A. Adjust the 30 June 2020 financial report. B. Disclose the information in the notes to the 30 June 2020 financial report. C. Request that the client recall the 30 June 2020 financial report for revision. D. No action is required. (5*1.5= 7.5 marks) 2. If no action is taken by management for each of the events described above (i-v), determine the most appropriate audit opinion to be issued.

Answer 1

Case I

Ans B

B. Disclose the information in the notes to the 30 June 2020 financial report. As event(case) final after audit report signed and send to sharehoder and suitfile is pending as on 30june i.e date of audit report

Case ii

Ans B. Disclose the information in the notes to the 30 June 2020 financial report as event belong to date date after date of balance sheet date but as matter of loss it's need to disclose in balance for neend attention of shareholder and other decision making body

Case III

Ans. C Request that the client recall the 30 June 2020 financial report for revision. As event after happened after date of balance sheet but before signing of balance sheet and in revision make provsion for loss if revision possible

Case IV

And D

As case settled out of court and settlement happend after balance sheet date and report signed by auditor and matter of case was already reported but auditor in discolur as case is running in court

Case v

Ans D as no action requied

As matter belong to event after balance sheet date and matter come to knowledge after balance signed by auditor and send to shareholder