Question $5$

During the audit of Supreme Ltd for the year ending $31$ August $2021,$ you

have been asked by your audit manager to review the subsequent events.

During the review, you noted the following:

i$)$ On $8$ September $2021,$ Supreme received a letter from the tax authorities

indicating that there was additional income tax of $$70,000$ due in respect

of a prior year. This matter has not been recorded in the draft financial

statements as at $31$ August $2021.$

ii$)$ A customer with a receivable balance of $$200,000$ at $31$ August $2021$ was

declared bankrupt in September $2021.$

iii$)$ On $10$ September $2021,$ a fire in the warehouse destroyed a material

amount of inventory.

Required:

d$)$ ISA $560$ Subsequent Events recognises two types of subsequent events.

Define each and outline how it impacts the financial statements.

e$)$ Assess the auditor's responsibility in relation to each of these events from

$($i$)$ to $($iii$),$ outlining the adjustments to the financial statements.