QUESTION 7 Consider the following material and independent situations (i) to (iii) below. In each situation, the following dates apply: Balance date: 31 December 2020 Date of audit report: 8 March 2021 Audited financial report and audit report sent to shareholders: 15 March 2021 Annual general meeting: 30 April 2021 (i) A major customer was killed in a boating accident on 25 January 2021. The customer had earlier pledged his boat as collateral. The boat, which was destroyed in the accident, was not insured. The allowance for doubtful debts is not adequate to cover the anticipated loss. (ii) On 2 February 2021, the board of directors approved the salary of the Chief Executive Officer (CEO) for 2021 as well as the sale of a significant bond issue. (iii) On 12 February 2021, your client agreed to an out-of-court settlement of $50,000 in respect of a property damage suit resulting from an accident caused by one of its delivery trucks. The accident occurred on 1 January 2021.

For each of the events (i), (ii) and (iii) above: (a) Describe two (2) audit procedures that the auditor could have taken in order to learn of the subsequent event. (6 marks) (b) State the appropriate action to be carried out on the audited financial statements. The alternative actions are as follows: Adjust the 31 December 2020 financial statements, or Disclose the information in the notes to the 31 December 2020 financial statements, or Request the client to recall the 31 December 2020 financial statements for revision, or No action is required Give reasons for your decision.