Young & Co., CPAs is auditing Express Inc. for the current year. Express Inc. has thousands of purchase orders each month. The CFO in discussion with the auditors raised the concern whether certain employees are utilizing company purchase orders to obtain merchandise for personal use.

Young & Co. has decided to apply data analytics software to investigate the CFO’s concerns. From the data analytics report, the auditors discovered that an employee of the client during the period subsequent to the balance sheet date had used three purchase orders to obtain merchandise for personal use. The three purchase orders resulted in a material potential liability for Express Inc. Negotiations between the creditor and the client’s attorney resulted in a complete release from any obligation on the part of the client.

Required: 

Attempt to explain what data the auditors would analyze in the data analytics software to address this issue, and whether this issue needs to be disclosed in the client’s financial statements as a subsequent event item as required in the auditing literature. As the audit manager on the engagement, you have been assigned to determine what if any disclosure is necessary.