Reference no: EM132613974

Subsequent Events

The financial year of the company being audited is 30 June 2019. The company sells play equipment. Your auditor's report was signed 31 August 2019. The financial report was approved on the same day by the directors. The financial report was issued to shareholders on 10 September 2019.

The following material events occurred or became known to you from 30 June 2019 onwards. Assume each event is material.

Required:

For each of the following independent and material situations:

Question a) Determine the auditor's responsibilities

Question b) Select the appropriate action from the list below:

A. Adjust the 30 June 2019 financial statements

B. Disclose the information in a note to the 30 June 2019 financial report

C. Request that the client recall the 30 June 2019 financial report for revision

D. No action is required

Question c) Justify your response.

1) 25 July - the company settled and paid a personal injury claim of a former employee as a result of an accident that occurred in June 2018. The company has previously recorded a liability for the claim, but this claim was slightly under estimated.

2) 27 July - the directors become aware of toxic materials found in their pre-packaged sandpits. This product had only been on sale for two weeks and had been purchased directly from the manufacturer and (unrelated company) one week prior to being introduced to the public.

3) 3 August - A warehouse owned by the company was significantly damaged by fire, resulting in an uninsured loss of 10% of their inventory.