QUESTION 14 For the following separate and material events, 1) identify auditors' responsibility, 2) list the proper accounting treatment with justification, and 3) analyse the impact of the event on the audit report. Your client, Restaurant Limited, runs several cafes and restaurants in South East Queensland. The financial year of your audit client ended on 30 June 2021. The audit report has been signed off by the audit partner on 20 August 2021, whereas the financial report was issued on 29 August 2021. (10 marks) a. On 28 August 2021, the auditor discovered one of the client's restaurants caught fire on 21 August 2021 and the estimated damages to assets amount to $300,000. (4 marks) b. On 2 October 2021, the auditor discovered that the client settled a lawsuit with a group of customers for food poisoning. The food poisoning occurred on 21 November 2020 and the settlement is reached on 1 October 2021. The matter is reported as a provision of $1 million on the issued financial report. (2 marks) c. On 19 August 2021, the auditor discovered that the client has signed a new loan contract on 17 August 2021 with Commonwealth Bank of Australia to borrow $2 million. The purpose of the loan is to provide additional working capital for the company to combat the negative impact of COVID and lockdowns on the restaurant business. COVID started to affect the restaurant business in May 2020. (4 marks) QUESTION 14 For the following separate and material events, 1) identify auditors' responsibility, 2) list the proper accounting treatment with justification, and 3) analyse the impact of the event on the audit report. Your client, Restaurant Limited, runs several cafes and restaurants in South East Queensland. The financial year of your audit client ended on 30 June 2021. The audit report has been signed off by the audit partner on 20 August 2021, whereas the financial report was issued on 29 August 2021. (10 marks) a. On 28 August 2021, the auditor discovered one of the client's restaurants caught fire on 21 August 2021 and the estimated damages to assets amount to $300,000. (4 marks) b. On 2 October 2021, the auditor discovered that the client settled a lawsuit with a group of customers for food poisoning. The food poisoning occurred on 21 November 2020 and the settlement is reached on 1 October 2021. The matter is reported as a provision of $1 million on the issued financial report. (2 marks) c. On 19 August 2021, the auditor discovered that the client has signed a new loan contract on 17 August 2021 with Commonwealth Bank of Australia to borrow $2 million. The purpose of the loan is to provide additional working capital for the company to combat the negative impact of COVID and lockdowns on the restaurant business. COVID started to affect the restaurant business in May 2020. (4 marks)
