Reference no: EM132783219
Your client is Patriot Ltd, a diversified business operating throughout Australia. The financial year ended on 30 June 2020. The auditor's report was signed on 31 July 2020 and the financial statements were mailed to shareholders on 14 August 2020.
During your subsequent events review you noted the following independent and material items:
1. Patriot has been involved in a legal dispute with a competitor for a number of years. The dispute relates to alleged breaches of copyright by Patriot. On 27th July you discovered that Patriot had settled legal action out of court on terms more favourable than expected.
2. On 10th July one of Patriot's major product lines developed a fault that rendered the product unusable. Patriot became aware of the fault on 30 July. Although the fault posed no safety risks to consumers, Patriot decided to launch a full product recall on the following day.
3. Patriot has invested significant funds in developing a new type of cholesterol- reducing margarine. On 7th July Patriot applied for a patent for the margarine, only to discover that the competitor has lodged a similar application previously. The granting of Patriot's application is now in doubt.
4. Patriot's bank loan is conditional upon certain ratios being maintained at all times. On 20th August you discovered that one of the ratios was breached for a 24- hour period on 18th August.
5. In early June, one of Patriot's largest debtors informed Patriot that it was experiencing serious financial difficulties. On 5 July, Patriot was informed that the debtor had gone into receivership. Preliminary reports suggest Patriot will recover only 10 cents in the dollar of the outstanding debt.
Required
Problem 1: For each of the events described above, select the appropriate action from the list below and justify your response:
A. Adjust the 30 June 2020 financial report.
B. Disclose the information in a note to the 30 June 2020 financial report.
C. Request the client recall the 30 June 2020 financial report for revision.
D. No action is required.