Question 5 - Subsequent Events (12 marks)

WYN Limited (trading as Import Warehouse) is an audit client with a 31 March year end (balance date). As part of your accelerated professional development, your audit engagement partner has asked you to review the following four transactions and events that happened after 31 March but before the financial report declaration was made by the Directors and she signed the audit report (8 June).

For each transaction or event, your audit partner has asked you to:

present your judgement about the type of subsequent event being illustrated and therefore how we would expect to the client has treated it in their financial report; (1 mark each)

indicate two types of audit procedure that should have brought the matter to our attention as audit engagement team members (she requires this in order to include these examples as part of future professional development activities). (2 marks each)

(a)5 April: Import Warehouse settled and paid a wrongful dismissal claim with a former employee that had been disclosed as a contingent liability at year-end. The claim was lodged in October of last year.

Type of subsequent event:

Two types of audit procedure bringing transaction/event to our attention:

(b)10 April: Import Warehouse received a shipment of goods from China that had been sent on 3 January from the supplier's warehouse. Import Warehouse terms of trade with that supplier specify title (ownership) passes on shipment.

Type of subsequent event:

Two types of audit procedure bringing transaction/event to our attention:

(c)20 May: One of Import Warehouse's 15 company owned outlet stores (each of similar size and inventory holdings) suffered severe storm damage to the building and inventory. Insurance covered the building, but only 40% of the damaged inventory.

Type of subsequent event:

Two types of audit procedure bringing transaction/event to our attention:

(d)1 June: As part of an expansion strategy, the company paid cash for a controlling interest in Onliner to provide an expected additional 50% sales volume.

Type of subsequent event:

Two types of audit procedure bringing transaction/event to our attention: