Exercise 5.3 ★ ★ RECOGNISING A PROVISION Company B, a listed company, provides food to function centres that host events such as weddings and engagement parties. After an engagement party held by one of Company B’s customers in June 2016, 100 people became seriously ill, possibly as a result of food poisoning from products sold by Company B. Legal proceedings were commenced seeking damages from Company B, which disputed liability by claiming that the function centre was at fault for handling the food incorrectly. Up to the date of authorisation for issue of the fi nancial statements for the year to 30 June 2016, Company B’s lawyers advised that it was probable that Company B would not be found liable. However, two weeks after the fi nancial statements were published, Company B’s lawyers advised that, owing to developments in the case, it was probable that Company B would be found liable and the estimated damages would be material to the company’s reported profi ts. Required Should Company B recognise a liability for damages in its fi nancial statements at 30 June 2016? How should it deal with the information it receives two weeks after the fi nancial statements are published?