In a word document provide your response to the situation described below being sure to address the requirements below. Be sure to cite guidance to support your answers.

Electra, Inc. sells hair products. In early December 20X1, multiple stories began circulating in the press asserting that Electra's newest product, Shiny Gloss, has caused dramatic hair loss among multiple women. After reviewing these stories, Electra's legal counsel has told the company to prepare for a likely class action lawsuit. Immediately upon learning of the news stories, Electra bean an internal investigation into the product to understand whether the defect was known before the product went to market. In January 20X2, Electra completed its investigation and found two of its top scientists were aware of the defects and did not share this information regarding negative side effects with management. Also in January 20X2, Electra's legal counsel cautioned the company that a class action lawsuit will likely result in a settlement of at least $2 million.

Electra prepares its financial statements in accordance with IFRS and has a calendar year-end. Electra typically issues its financial statements by February 15 following each year-end.

Required

You are the auditor for Electra.

1. What recognition or disclosures would you expect to see in Electra's calendar year-end 20X1 financial statements?
2. What role, if any should the additional information identified in January 20X2 have on Electra's year-end financial statements?