QUESTION 2: Subsequent Events 

Assume the fieldwork for the 30 June 2023 audit of Swifty Magic ended on 18 September 2023 which was also the audit report date. The financial statements and auditor's report were issued and mailed to shareholders and presented at the AGM on 20 September 2023. In each of the material situations (1 through 7) below, state the appropriate action the auditor should take and explain/justify your answer. 

 

1.   On 10 October 2023, you discovered that a debtor of Swifty Magic went bankrupt on 7 July 2023, due to a major uninsured fire that occurred on 3 July 2023. (2 Marks)

ANSWER:  

 

 

 

2.       After enquiring from Swifty Magic's lawyers regarding a lawsuit involving a material amount. our   own auditors assessed the liability that can arise from this lawsuit as highly probable, but they are unable to finalise the amount involved. We only discovered this matter on 4 July 22023. 

ANSWER: 

 

 

 

3.   On 20 July 2023, Swifty Magic settled a lawsuit out of court. The lawsuit originated in 2022 and was disclosed, in a footnote, as a contingent liability in the 2022 and 2023 financial statements.

ANSWER: 

 

 

 

4.  The auditor discover on 10 July    that a lawsuit against Swifty Magic   which was recorded in the financial statements as $45 000 was settled at an amount of $20 000. This is material.  

ANSWER: 

 

 

 

5.   On I October 2023 Swifty Entertainment settled a lawsuit out of court. The lawsuit originated in 2022 and was disclosed, in a footnote, as a contingent liability in the 2022 and 2023 financial statements.

ANSWER:

 

 

 

6.   On 30 September 2023 the market takes an unexpected turn and the Swifty Magic holds a short-term investment in one of the companies whose shares have declined. 

            ANSWER:

 

 

 

 

7    On 2 July 2023, you discovered a significant lawsuit against Schmidt Entertainment. The lawsuit originated on 30 June 2020. The lawyer of Swift Magic believes it is probable that Swift Magic will lose the lawsuit and estimate that an amount of $20000 can be reasonably be estimated. 

ANSWER:  

 

 

 

 8. In reviewing the board minutes on 31 July    the auditor discovered that that the one of the company's vehicles has been sold at a significant profit of $59 000, after the balance sheet date. 

 ANSWER: