Problem 1. Silky skin is a listed company that manufactures body lotions under the 'Shiny' brand. The company's year-end is December 31, 2012, and today's date is March 1, 2012. Draft profit before taxation is $2 million. The audit is nearing completion, but two issues remain outstanding: (1) On February 27, 2012 a legal claim was made against the company on behalf of a teenager who suffered severe burns after using 'Shiny' in July 2011. Silky skin is considering an out of court settlement of $100,000 per year for the remaining life of the claimant. However, no adjustment or disclosure has been made in the financial statements. (2) At a Board Meeting on 30 April 2012, the directors of Silky skin proposed a dividend of $1 million. It is highly likely that the shareholders will approve the dividend at the Annual General Meeting on 3 September 2012. The directors have recorded the dividend in the draft Statement of Changes in Equity for the year ended December 31, 2012. (a) Explain whether the two outstanding issues are adjusting or Non-adjusting events, in accordance with IAS 10, Events after the Reporting Period. (b) Explain appropriate audit procedures in order to reach a conclusion on the two outstanding issues. (c) Explain the likely impact on the audit opinion if the directors refuse to make any further adjustments or disclosures in the financial statements