Question 4 (15 marks)

Consider each of the following independent and material situations, identified below (i-vi). In each case:

• the balance date is 30 June 2020;
• the field work was completed on 12 August 2020;
• the Directors Declaration and the Audit report were signed on 20 August 2020;
• the completed financial report accompanied by the signed Audit report were mailed to the shareholders on 26 August 2020.

1. On 26 September 2020, you discovered that a debtor at 30 June 2020 had gone bankrupt on 2 September 2020. The debt had appeared collectible at 30 June 2020 and 20 August 2020.

2. On 12 August 2020, you discovered that a debtor at 30 June 2020 had gone bankrupt on 5 August 2020. The cause of the bankruptcy was an unexpected loss of a major lawsuit by the debtor on 15 July 2020.

3. On 14 August 2020, you discovered that a debtor had gone bankrupt on 5 August 2020. The sale took place on 2 July 2020. The cause of the bankruptcy was a major uninsured fire at one of the debtors premises on 30 June 2020.

4. On 19 August 2020, the company settled a legal action out of court that had originated in 2016 and was listed as a continent liability at 30 June 2020.

5. A draft investigative report commissioned by a government enquiry was leaked to the media on 10 August 2020. The report has questioned the continued need for a segment of your clients business. Accordingly, there is a significant uncertainty regarding the future necessity for one of the services offered by your client and its industry colleagues. There have been significant media attention and speculation on this issue.

6. Your client, BHP Mining, owns a mineral exploration licence in Western Australia. At 30 June this licence was valued by an independent expert at $20,000,000. This valuation is reflected in the financial report. On 17 August BHP Mining received notice that a claim was being lodged under the Native Titles Act for land which included that subject to the exploration licence. If the claim is successful, the exploration licence will be worthless.

Required:

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

1. Adjust the 30 June 2020 financial report.
2. Disclose the information in the notes to the 30 June 2020 financial report.
3. Request that the client recall the 30 June 2020 financial report for revision.
4. No action is required. (6*2= 12 marks)

If no action is taken by management for each of the events described above (i-v), determine the most appropriate audit opinion to be issued.