Reference no: EM131618970

Qusetion: Subsequent Events, Subsequently Discovered Facts, and Omitted Procedures. Jay Ralph completed the December 31, 2014, audit of Raider Company on February 3, 2015; Raider's financial statements and Ralph's reports on Raider's financial statements and internal control over financial reporting were released on February 12, 2015. During April 2015, Ralph's firm conducted a quality review over selected audits that had been completed during the most recent year and the audit of Raider Company was randomly selected for review. The reviewer identified the following matters that Ralph had not addressed during the audit of Raider: a. On February 9, 2015, Ralph learned of the following events during his postaudit meeting with Raider's chief operating officer.

1. A class action lawsuit was brought against Raider Company by some of its former employees for workplace discrimination. An attorney on behalf of a class of employees filed the lawsuit on January 10, 2015. The letter from Raider's attorneys did not identify this lawsuit.

2. One of Raider's major customers is experiencing significant financial difficulties; this customer's account receivable balance on December 31, 2014, was $1.2 million, which represented 2 percent of Raider's total accounts receivable on that date. Because of an important deadline for submitting the financial statements to lenders for evaluation, Raider did not modify its financial statements for the preceding events despite the fact that they were material. Their justification was that because the events occurred after the date of the financial statements, they were not required to be disclosed in the financial statements. Ralph acquiesced to Raider's wishes and did not modify the report on Raider's financial statements. b. On March 16, 2015, Ralph initially learned of the following events affecting Raider Company, neither of which was disclosed in Raider's financial statements:

1. Raider Company declared a significant dividend payable to its shareholders. This dividend was declared on March 14, 2015, to be paid to Raider's shareholders of record on May 16, 2015.

2. Raider Company activated a portion of its line of credit on February 1, 2015, by borrowing $2.5 million. This additional obligation increased Raider Company's longterm liabilities by 10 percent.

c. Reviewing Ralph's audit documentation, it does not appear that any tests were conducted to evaluate the need for impairment of the carrying value of Raider Company's property, plant, and equipment. Required:

For each of the preceding items, describe what actions Ralph should take after the firm's quality review identified these issues.