Reference no: EM132569371

Question - Charles Chong is the engagement partner for the financial report audit of Omega Ltd ("Omega") for the year ended 31 December 2019.

Chong learns of the following material events just before he is scheduled to issue his audit report on 28 February 2020:

(i) On 3 January 2020, Omega received a shipment of raw materials from Shanghai, China. The materials had been ordered in October 2019, and were shipped FOB from Shanghai in November 2019.

(ii) On 17 January 2020, the company settled and paid a personal injury claim of a former employee as the result of an accident that occurred in March 2015. The company had not previously recorded a liability for the claim.

(iii) On 24 January 2020, the company agreed to purchase for cash the outstanding shares of Kappa Ltd. The acquisition is likely to double the sales volume of Omega.

Note: FOB ("Free On Board") is a trade term whereby the seller fulfills its obligations to deliver when the goods have passed onto the ship. At this point, the ownership of the goods passes to the buyer.

Required - For each of the events (i), (ii) and (iii) above:

(a) Describe one (1) audit procedure that the auditor could have taken in order to learn of the subsequent event.

(b) State the appropriate action to be carried out on the audited financial statements. The alternative actions are as follows:

Adjust the 31 December 2019 financial statements, or

Disclose the information in the notes to the 31 December 2019 financial statements, or

Request the client to recall the 31 December 2019 financial statements for revision, or

No action is required

Give reasons for your decision.