Auditing and Assurance A Case Studies Approach

a$)$ the annual general meeting of the companies is scheduled for or was held on $30$ March $2015.$

A A draft investigative report commissioned by a government enquiry was leaked to the media on

$25$ February $2015.$ The report has questioned the continued need for a segment of your client's

business. Accordingly, there is significant uncertainty regarding the future necessity for one of the

services offered by the company and its industry colleagues. There have been significant media

attention and speculation on this issue.

B At $31$ December $2014,$ AAA Limited had non$-$performing loans owing from individuals of $$10$ million.

Negotiations seeking an early settlement of the loans have been ongoing throughout the year.

The company has offered a settlement package of $$5$ million cash as full consideration for the

extinguishment of the debts. Accordingly, at $31$ December $2014$ the directors had written the loans

down to $$5$ million.

$($a$)$ On $28$ February $2015$ the offer was rejected and a revised offer package encompassing listed shares

and a small amount of cash was put forward. The current market value of the package has been

estimated at $$5,750,000.$

$($b$)$ Would your assessment change if the original offer had been rejected and the revised offer package

submitted on $15$ March $2015?$

$($c$)$ Would your assessment change if the current market value of the revised package offered on

$28$ February $2015$ had been estimated at $$4,250,000?$

C Consider the discovery of the following legal actions:

$($a$)$ On $7$ March $2015,$ you discovered an uninsured legal action against the client that had originated

on $31$ January $2014.$

$($b$)$ On $20$ February $2015,$ the company settled a legal action out of court that had originated in $2011$

and was listed as a contingent liability at $31$ December $2014.$

D Consider the following situations where a debtor of NACD Limited has gone bankrupt:

$($a$)$ On $29$ April $2015,$ you discovered that a debtor at $31$ December $2014$ had gone bankrupt on $1$ April $2015.$

The debt had appeared collectible at $31$ December $2014$ and $3$ March $2015.$

$($b$)$ On $20$ February $2015,$ you discovered that a debtor at $31$ December $2014$ had gone bankrupt on

$3$ February $2015.$ The cause of the bankruptcy was an unexpected loss of a major lawsuit by the

debtor on $15$ January $2015.$

$($c$)$ On $20$ February $2015,$ you discovered that a debtor had gone bankrupt on $3$ February $2015.$ The sale

took place on $2$ January $2015.$ The cause of the bankruptcy was a major uninsured fire at one of the

debtor's premises on $31$ December $2014$

REQUIRED

In each of the above events $$ to $D,$ which are all material, state the appropriate action $1$ to $4$ for

the situation and justify your response. The alternative actions are as follows:

Adjust the $31$ December $2014$ financial report.

Disclose the information in the 'Subsequent Events' note in the $31$ December $2014$ financial report.

Request the client to issue revised $31$ December $2014$ financial report.

No action is required.