ASA 560 Subsequent Events requires the auditor to consider material events they may discover after the end of the financial period and up to (and including) the date the auditor’s report is signed. In this assignment you will apply the requirements of ASA 560 to a number of different scenarios that could arise during the audit of Cloud 9.

The end of the financial year is 31 December 2016. The audit report was signed on 15 February 2017. The financial statements and directors’ report was signed on 15 February 2017 and released to the public that same day along with the auditor’s report.

Required You have been given a number of independent situations:

i. You discover on 15 January 2017 that Shoez, a major customer, has become insolvent and Cloud 9 will not be able to collect amounts owing to them.

ii. You discover on 10 February 2017 that a customer is suing Cloud 9 after they slipped and fell inside a Cloud 9 retail outlet. The accident occurred in November 2016.

iii. On 31 January 2017 the federal government released a draft working paper proposing an increase in import duties on all goods from China of 150 per cent starting in July 2017. This increase in duties would increase the price of Cloud 9 shoes significantly.

iv. At the official launch of the financial statements you overhear the financial controller discussing a situation where an employee has been stealing cash from Cloud 9.

v. In March 2017 you read a newspaper article with regard to Cloud 9 possibly purchasing the shoe company Groovy Shooz (a competitor).

(a) Describe what action should be requested of the client by the auditor in each of the following situations. Potential options include:

• requesting that the client make a disclosure in the notes to the accounts • requesting that the client make an adjustment (name the account)

• advising the client of a change in audit opinion (what sort of opinion should be given)

• doing nothing.

(b) Explain your answer. Include an accounting and/or auditing standard and paragraph reference to support your answer.