Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Company B is a calendar year end private energy company. A bank (debt) covenant requires Company B to provide audited financial statements in accordance with

Company B is a calendar year end private energy company. A bank (debt) covenant requires Company B to provide audited financial statements in accordance with US GAAP. Auditor A is performing audit procedures for calendar year 2020 in spring of 2021. During the audit procedures and before the audit report has been finalized, Auditor A is informed by management and legal counsel that its fleet of oil tankers sunk to the bottom of the ocean in January 2021 and Company A will be liable for remediation and potentially face fines, damages, and other costs. Management thinks it is probable that the spill will have material financial consequences, but it is too early to estimate the amount. Select the correct statement below:

a.

This is a Type I subsequent event. Company A should book a contingent liability in 2020 and disclose this event in its audited financial statements for 2020.

b.

This is a Type II subsequent event. Company A should not book anything in 2020, but should disclose relevant facts in its 2020 audited financial statements as a subsequent event.

c.

This is a Type I subsequent event. Company A should not book anything in 2020, but should disclose the facts in its 2020 audited financial statements as a subsequent event.

d.

This is a Type II subsequent event. The Company should book the expected financial impact in 2020 and disclose the matter.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Studies Of Company Records (RLE Accounting)1830-1974

Authors: J. R. Edwards

1st Edition

1138983306, 9781138983304

More Books

Students also viewed these Accounting questions