Following are a series of independent situations (i.e. do not let any one situation affect your view of the other situations). For each situation below, descibe what action you believe you as the auditor should take in the given situation, and provide an explanation as to why you believe this is the correct course of action. Support your response with reference to the auditing standards where appropriate. For the purpose of this activity, recall that the financial statements are dated December 31, 2020. Assume that the audit report will be dated February 15, 2021.

January 6, 2021 - A municipal road crew was doing road repairs on a secondary road that runs over top of a section of the pipeline. During the road work, a backhoe operator accidentally damaged a portion of the pipeline. ColAlta has filed a lawsuit claiming damages in the amount of $65,000.

January 24, 2021 - As you were completing the final summary of your working papers for accrued liabilities, one of the accounts payable clerks informed you that she had discovered the December invoice for coffee supplies had not been entered into accounts payable, in the amount of $58.

January 10, 2021 - One of the accounts receivable clerks resigned on this date. As he cleaned out his desk, he spoke quite loudly and angrily about how ColAlta used fraudulent financial reporting practices. Another clerk informed you that the clerk who resigned had been very unhappy for some time.

February 6, 2021 - While getting coffee one morning, you overheard two employees discussing their suspicions that ColAlta had a history of exaggerating their net income as reported in the financial statements, so that the senior managers could earn a higher bonus at the end ofthe year