Reference no: EM132996766
Question - You are the engagement partner for the financial report audit of Foxy Loxy Ltd (FLL) for the year ended 30th June 2020. The following material events have come to your attention before you are scheduled to sign the Audit Report on 28th August 2020.
i. On 23rd July 2020, the directors became aware of a structural fault in their new prepackaged zip-line flying fox. This new product had only been on sale for three weeks and had been purchased directly from the manufacturer, ZippidyDippity Ltd, an unrelated company in Vietnam, one week prior to being introduced to the public.
ii. On the morning of 1st July 2020, staff turned up to work at 7.00am to find one of the warehouses destroyed by fire. About one quarter of FLL's inventory was in the warehouse, and was uninsured. The official report indicated the cause of the fire to be an electrical fault, and estimated the fire to have started 5 hours before the staff arrived (ie. started at 2.00am on 1st July 2020).
Required - For each of the above listed events:
a. In accordance with AASB110, what is the appropriate treatment in the financial report for the year ended 30th June 2020?
b. Explain why the answer you gave in part 'a' is appropriate.
c. Describe two separate ways the auditor could have found out about each event.
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