Materiality, errors and events after the reporting period   LO5, 6 You are currently auditing the financial statements and records of Buffalo Ltd for the year ended 30 June 2021. In the course of your investigations you uncover the following transactions that occurred after the end of the reporting period but which appear to relate to the financial year ended 30 June 2021.

(a) Warranty costs raised for goods returned in the final two weeks of June 2021 were posted as July 2021 sales returns. The goods returned were worth $16 500.

(b) On 16 September 2021, there was a fire in the company’s main warehouse. Loss of inventories was covered by insurance but there was significant disruption to the flow of production output. The financial effects of the disruption are estimated to be $150 000, and are not covered by insurance.

(c) Buffalo Ltd manufactures textiles and purchases raw cotton from overseas. A shipment of cotton was in transit at the end of the reporting period and, given that the price per bale is determined by quality, an estimated cost of $125 000 was recognised. The cotton duly arrived on 18 July 2021 and after examination it was determined that the cost will be $163 000.

(d) On 23 July 2021, a favourable judgement was handed down in a lawsuit lodged by Buffalo Ltd against a major supplier for damages arising from poor-quality materials delivered in April 2020. The damages and costs awarded to Buffalo Ltd totalled $1 500 000. The draft accounts currently report this as a contingent asset. Required 1. Discuss how you would determine whether or not each of the above events is material, stating any additional information you would require in making your determination. 2. Assuming each of these events is considered material and occurred prior to the date the accounts were authorised, explain which, if any, are adjusting or non-adjusting events after the reporting period.