Cupid's Kiss Limited (“CK”) was founded in early 1980s focusing on the manufacturing and trading of baby food and snacks in Hong Kong. After years of development, CK is now one of the well-known baby food producers in Asia. You are the audit manager-in-charge of the audit of CK’s financial statements for the year ended 30 September 2020. The audit is substantially completed. After reviewing the audit documentation, you and your audit partner are satisfied with the audit. There are no significant issues or difficulties encountered in the audit. It has been agreed with CK that the auditor’s report for the year ended 30 September 2020 will be authorized and approved in mid-November 2020. Just a week before the planned approval date of the auditor’s report, you read a news headline: “A popular product of Cupid's Kiss is proven to contain toxic ingredients with a high risk of causing health problems as the raw materials were contaminated. Cupid’s Kiss announced an immediate product recall.”

Required:

(a) Determine and explain whether Cupid’s Kiss toxic ingredients problem is an adjusting event or a non-adjusting event. Discuss its implications to its financial statements for the year ended 30 September 2020. (6 marks)

(b) Suggest relevant audit procedures in response to Cupid’s Kiss toxic ingredients problem. (6 marks)

(c) Determine and explain the auditor’s obligation to follow up on the toxic ingredients problem 

d) if the news is only known by the auditor after the issuance of the auditor’s report and the financial statements. (6 marks)