1. Harbour Inc. has a December 31, Year 1, year end. It is now March 15, Year 2. Fieldwork was completed on March 2, Year 2, and the auditor's report has not been signed yet. In October Year 1, there was a lawsuit filed against Harbour for copyright infringement, and on March 15, Year 2, Harbour settled the lawsuit for $100,000. Harbour has only disclosed this lawsuit in the Year 1 financial statements. 

 

2. Beauty Treats (BT) has a December 31, Year 1, year end. In October Year 1, BT had a large flood that destroyed $300,000 of inventory. BT filed a claim with its insurance provider and expected to receive $150,000 in proceeds. This was recorded in the December 31, Year 1, financial statements. On February 28, Year 2, BT received a letter from the insurance provider stating that the flood was due to negligence on BT's behalf and no proceeds would be issued. The auditor's report was not signed yet. 

 

3. ABC Inc. has a December 31, Year 1, year end. The auditor's report was signed on April 1, Year 2, and on April 25, Year 2, the financial statements were issued to shareholders. On August 5, Year 2, ABC announced an agreement to acquire BBC Inc. Under the terms of the agreement, the transaction is valued at $450,000. 

 

4. Castle Crown (CC) has a December 31, Year 1, year end. It is now March 15, Year 2, and the auditor's report has been signed. Financial statements have not been issued yet. The auditors came across a news article that stated that Happy Inc. has declared bankruptcy. The auditor remembered that CC had a material outstanding balance from Happy for $250,000 at December 31, Year 1. 

 

Required: 

For each of the independent scenarios, determine the type of subsequent event and its impact on the audit.