The following questions concern subsequent events. Read the background information related to company and the description of each event, and answer the related questions.

BACKGROUND INFORMATION
Silo Inc. manufactures industrial chemicals. It has a chemical plant in Sarnia, Ontario, and four offsite storage locations for finished goods. Silo’s year-end was October 31, 2018. It is now November 25: the audit has been completed, and the auditors plan to have the closing meeting with the audit committee for approval of the financial statements next week. Planning materiality is $280 000 and performance materiality is $170 000. Net income before taxes is $5 600 000. The total of uncorrected misstatements is $50 000 overstatement of net income.

The following two events have occurred subsequent to the year-end. At this point, no adjustments or additional disclosures have been made in the financial statements with regards to the two events.

Subsequent Event 1

Silo undertakes extensive quality control checks prior to delivering its chemicals. Based upon testing performed on November 3, 2018, quality control concluded that a batch of chemicals produced in October was defective. The cost of this batch was $350 000. Management does not have any other options except to sell the chemicals for scrap (at a value of $100 000).

a. Before concluding on the appropriate financial statement treatment, provide two audit procedures that the auditor could perform to assess the impact of the event.

b. Choose the best response. Assuming that the auditor has performed additional audit procedures to corroborate the details of the event, the auditor should:

(1) Advise client management to adjust the financial statements for the $300 000 write-down of inventory and disclose the details of the event.

(2) Advise client management to include a note explaining the details of the event with no adjustment to the financial statements.

(3) Post the adjustment to the summary of identified misstatements, with no further action required.

(4) Revise planning materiality.

Subsequent Event 2
An explosion occurred at the smallest of the four offsite storage locations on November 20, 2018. This resulted in some damage to inventory and property, plant, and equipment. Based upon its internal investigation, Silo management determined the cause was lack of safety training. As a result, it does not think that insurance will cover the losses or repair costs. Management has decided to close the storage facility and move the chemicals to another facility. The estimated value of damaged inventory and property, plant, and equipment was $900 000, with no scrap value.

c. Before concluding on the appropriate financial statement treatment, provide two audit procedures that the auditor could perform to assess the impact of the event.

d. Choose the best response. Assuming that the auditor has performed additional audit procedures to corroborate the details of the event, the auditor should:

(1) Advise client management to adjust the financial statements, write off the $900 000 value of the assets, and disclose the details of the event.

(2) Advise client management to include a note explaining the details of the event and describing the value of the assets affected, with no adjustment to the financial statements.

(3) Post the adjustment to the summary of identified misstatements, with no further action required.

(4) Revise planning materiality.