Part A [8 marks] KPMG Australia was auditing an Australian company named Alliance Group for the year ended 30 June 2020. They noticed some events taking place after 30 June 2020 as follows: Scenario A 18 July 2020: Alliance Groups main fishing fleet was sunk during a freak storm. Insurance will cover the replacement of the vessels but lost sales representing $750 000 in profits are not covered. Scenario B 20 July 2020: Alliance group took delivery of a fishing net for its prawn trawler. The net was purchased from an overseas supplier on delivered duty paid shipping terms and was in transit at the end of the reporting period. An inspection of the net revealed significant structural flaws and the net was returned to the supplier on 28 July 2020. Alliance group is to receive a full refund of the $850 000 purchase price which had been paid in advance on 30 June 2020. Scenario C 27 August 2020: a lawsuit was lodged against the company by the families of crew members drowned in the 18 July storm, alleging negligence, and claiming $5 million in damages. No date has as yet been set for the court hearing. Scenario D 1 September 2019: the directors resolved to issue to the public 10 000 5% debentures of $12 each, payable $5 on application, $5 on allotment, and remaining $2 on call. Required: For each scenario above, advise whether it is an adjusting or non-adjusting event and provide a brief explanation. Part B [5 marks] Sam is a director of a company currently undergoing an audit. The auditors have informed Sam that his company has some issues with accounting policies and accounting estimates. For each of the scenarios given below you have to advise Sam whether it is a change in accounting policy or a change in accounting estimate. Provide brief reasons. 1. The useful life of depreciable plant is determined as being 5 years. 2. Sams company depreciates non-current assets. 3. Sams company uses straight-line depreciation. 4. Sams company determines that it will calculate its warranty provision using past experience of products returned for repair under warranty. 5. The current years warranty provision is calculated by providing for 3% of current year sales, based on last years warranty claimed amounting to 3% of sales. Part C [2 marks] Joe is a director in one of the top finance companies. In a recent audit, auditors informed Joe that last years financials contained an error and need to be corrected. As a director with limited accounting background/knowledge Joe is a bit concerned. Advise Joe on what the auditors mean and how the error should be corrected.