Question 4 (10 marks)

You are the auditor of BB Ltd (BB). Consider each of the following material events that occurred or were discovered after the end of the reporting period. In each case assume that:

the financial report date is 30 June 2021;

the Directors' Declaration and the Audit report were signed on 25 August 2021; and

the financial statements were issued on 10 September 2021.

(i)On 1 August a lawsuit was filed against BB Ltd for damages that allegedly occurred before 30 June. In the opinion of BB's lawyers, there is a danger of a significant loss.

(ii)On 15 August you found that Tanish, a debtor of BB, went bankrupt on 10 August. The most recent sale had taken place on 25 May and no transactions had occurred since that date.

(iii)On 1 September you discovered that a legal action commenced against BB in relation to a faulty product sold in May 2017.

(iv)On 30 September you discovered that John Cummins, a debtor of BB, went bankrupt on 15 July. Sales to John Cummins were all made before the end of the reporting period.

(v)On 1 October you discovered that Tara Brown, a debtor of BB, went bankrupt on 25 September. The sale had taken place before the end of the reporting period, but the amount had appeared collectable at the date on which the auditor's report was signed.

Required:

For each of the events described above (i-v), select the appropriate action from the list below, and justify your response.

A.Adjust the 30 June 2021 financial report.

B.Disclose the information in the notes to the 30 June 2021 financial report.

C.Request that the client recall the 30 June 2021 financial report for revision.

D. No action is required.