Reference no: EM132566686

Question - Subsequent Events (10 marks) Patricia Lee is the Auditor in charge for the financial report audit of ABC Limited for the year ended 31 December 2019. The balance date of ABC Limited is 31 December 2019. Patricia Lee expects to sign the Audit Report on 5 March 2020. The audited annual report is to be distributed to shareholders on 15 March 2020. The following are details of events that have occurred after 31 December 2019. All of the following are material in their effect on the financial statements.

1. On 31 January 2020, a major customer, XYZ Limited went into bankruptcy owing $200,000 .At balance date the account of XYZ Limited had appeared collectable by the ABC Limited and so no provision or any other action had been made with reference to this account.

2. On 2 February 2020, the ABC Limited received a lawsuit from a customer who was suing it for products bought in January 2019 because the product would not work.

3. On 25 February 2020, ABC Limited agreed to acquire a small distributor company, PTC Limited based in Perth for a consideration of $5 million to expand its customer base.

4. On 1 March 2020, ABC Limited settled and paid personal injury claims by two former employees as the result of a work accident that occurred in March 2018. The company had not previously recorded a liability for the claim.

5. On 20 March 2020, there is a major flood which caused a significant damage to the ABC Limited's inventory which is only partially covered by its insurance policy.

Required: For each of the above 5 material events or transactions:

(a) Discuss audit procedures that should have brought the item to the auditor's attention.

(b) Determine the appropriate action/disclosure that the auditor would require from the company.

Select the appropriate action from the list below: A. Adjust the 31 December 2019 financial statements B. Disclose the information in a note to the 31 December 2019 financial report C. Request that the client recall the 31 December 2019 financial report for revision D. No action is required.