Reference no: EM132969457

Question - You are in the process of completing your audit fieldwork with respect to the audit of Paper and Publishing Ltd (PPL) for the year ended 30 June 2019, and intend to sign the auditor's report on 25 August 2019. The following material events occur, or are discovered, after 30 June 2019.

i) PPL's Research Division has developed a new type of photocopy paper, and the directors believed that it will increase their sales volume significantly. As a result, PPL capitalised the development costs relating to the new photocopy paper. However, on 8 July 2019, the granting of the application for a patent for the photocopy paper was rejected because a competitor had registered a similar patent in June.

ii) PPL holds investments in several companies listed on the Hong Kong stock exchange. Over the past three months, this exchange has been losing about 1 percent of its value per month. On 11 August 2019, the exchange's value plummets by 25%.

iii) On 20 August 2019, PPL's dynamic CEO suddenly left the company after a disagreement with the Board. He was considered to be the driving force behind PPL's success in recent years.

Required - For each of the independent and material situations, determine if the event is an adjusting or non-adjusting event and select the appropriate action from the list below justifying your response:

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