In connection with your examination of the financial statements of Olars Mfg. Corporation for the year ended December 31, 2001, your review of subsequent events dis¬ closed the following items:

1. January 3, 2002: The provincial government approved a plan for the construction of an express highway. The plan will result in the expropriation of a portion of land owned by Olars Mfg. Corporation. Construction will begin in late 2002. No estimate of the condemnation (expropriation) award is available.

2. January 4, 2002: The funds for a $25,000 loan to the corporation made by Mr. Olars, the president, on July 15, 2001, were obtained by him by a loan on his personal life insurance policy. The loan was recorded in the account "loan from officers." Mr. Olars's source of the funds was not disclosed in the company records. The corporation pays the premiums on the life insurance policy, and Mrs. Olars, wife of the president, is the beneficiary.

3. January 7,2002: The mineral content of a shipment of ore which was en route on December 31, 2001, was deter¬ mined to be 72 percent. The shipment was recorded at year end at an estimated content of 50 percent by a debit to raw material inventory and a credit to accounts payable in the amount of $20,600. The final liability to the vendor is based on the actual mineral content of the shipment.

4. January 15, 2002: As a result of a series of personal dis¬ agreements between Mr. Olars and his brother-in-law, the treasurer, the latter resigned, effective immediately, under an agreement whereby the corporation would purchase his 10 percent stock ownership at book value as of December 31, 2001. Payment is to be made in two equal amounts in cash on April 1, 2002, and October 1, 2002. In December 2001, the treasurer obtained a divorce from his wife, who was Mr. Olars's sister.

5. January 31,2002: As a result of reduced sales, production was curtailed in mid-January and some workers were laid off. On February 5, 2002, all the remaining workers went on strike. To date, the strike is unsettled.

6. February 10,2002: A contract was signed whereby Mam¬ moth Enterprises purchases from Olars Mfg. Corporation all of the latter's capital assets (including rights to receive the proceeds of any property condemnation), inventories, and the right to conduct business under the name "Olars Mfg. Division." The effective date of the transfer will be March 1, 2002. The sale price was $500,000, subject to adjustment following the taking of a physical inventory. Important factors contributing to the decision to enter into the contract were the policy of the board of directors of Mammoth Enterprises to diversify the firm's activities and the report of a survey conducted by an independent market appraisal firm that revealed a declining market for Olars products.

Required Assume that the items described above came to your attention prior to completion of your audit work on February 15, 2002. For each item:

a. Give the audit procedures, if any, that would have brought the item to your attention. Indicate other sources of information that may have revealed the item.

b. Discuss the disclosure that you would recommend for the item, listing all details that you would suggest should be disclosed. Indicate those items or details, if any, that should not be disclosed. Give your reasons for recommending or not recommending disclosure of the items or details.

(AICPA adapted)