Reference no: EM132723583

Question - Subsequent Event

The audit team completed the field work on 22 July 2020. The audit report was signed on 5 August by Charles Kirby. The financial statements were signed by the BoD on the same day, which was subsequently released to shareholders on 12 August 2020.

During the review of subsequent events, you noted the following material events:

1. Cook's Furniture Ltd has purchased a property in Adelaide Australia on 20 July 2020 for AUD 3,200,000 and intended to use it as a showroom. The company borrowed AUD 2,000,000 to finance the purchase. The company plans to take the opportunity of the current low interest rate to expand its property acquisitions.

2. The company applied for Wages Subsidy scheme on 4 April and was granted 70,000. On 7 August, the BoD received a letter from the government requesting the company to pay back the Wages Subsidy with interests citing the reason that the company did not qualify.

3. The company was experiencing delays in its supply chain from overseas suppliers from March to May 2020, which resulted longer lead times in filling customer orders. On 31 July, a customer filed a lawsuit against the company suing for damages of $300, 000. Because of the delay, this customer could not open business on time and suffered income loss.

REQUIRED - For each of the above subsequent event:

a) Explain the potential impact on the 2020 financial statements.

b) Discuss audit procedures that may verify the potential impact on the 2020 financial statements.