acc701: auditing

Question

The auditor is auditing financial statements for the year ended 31 December 2012 and is completing the audit in early March 2013. The following situations have come to the auditor's attention:

a) On 12th February 2013, the client agreed to an out-of-court settlement of a property damage suit resulting from an accident caused by one of its delivery trucks. The accident occurred on 20th November 2012. An estimated loss of $30,000 was accrued in the 2012 financial report. The settlement was for $50,000

b) The client is a bank. A major commercial loan customer filed for bankruptcy on 26th February 2013. The bankruptcy was caused by an adverse court decision on 15th February 2013 involving a product liability lawsuit initiated in 2012 arising from products sold in 2010.

c) The client purchased raw materials that were received just before year end. The purchase was recorded based on its estimated value. The invoice was not received until 31st January 2013 and the cost was substantially different than the estimated.

d) On 2nd February 2013, the board of directors took the following actions:

a. Approved officers' salaries for 2013.

b. Approved sale of a significant bond issue.

c. Approved a new union contract resulting from employee strike on 2nd January 2013.

e) A major customer was killed in a boating accident on 25 January 2013 in Sydney Harbour. The customer had pledged his boat as collateral. The boat, which was destroyed in the accident, was not insured. The allowance for impaired receivables is not adequate to cover the anticipated loss.

Required:

For each of the preceding independent subsequent events (which are to be considered material), Indicate and explain whether the financial statements should be adjusted only, adjusted and the event disclosed, the even disclosed only, or neither adjusted nor the event disclosed.