subsequent cents 17-30 The following items of subsequent events are unrelated. For each of the following items, you are to indicate the required accounting treatment of the event. Assume that the external auditor has completed the field work and is preparing the auditor's report on the client's financial statements for the year ended 31 October 2003. 1. A large account receivable from a customer, ABC Company (material to the financial state- ment presentation was considered fully collectible at 31 October 2003. ABC suffered a plant explosion on 28 November 2003. Because ABC was uninsured, it is unlikely that the account will be collected 2. The court ruled in favour of the client company on 26 December 2003. Litigation involved lawsuit from a customer for alleged breach of contract in 2002. The client had provided for the full amount of the potential liability for the claim. The customer will not appeal the court's ruling 3. On 15 December 2003, the client applied to the Securities Commission for the issuance of 20 million new ordinary shares of RM 1.00 each. The proposed new issue represents 10% of the issued and paid up share capital of the company as at 31 October 2003. 4. On 22 December 2003, P. Sam, a major investment adviser, issued an unfavourable report on the client company's long-term prospects. The share price of the company subsequently declined by 30 percent 5. At its 5 November 2003 meeting, the board of directors decided to increase substantially the advertising budget for the coming year and authorised a change in advertising agencies. 6. On 30 November 2003, the company entered into a conditional sale and purchase agreement to acquire a 30% equity interest in Kapas Designs Sdn Bhd at a consideration of RM 1.9 million to be satisfied by cash payment. 17-31 Pang & Co are the auditors for KBN Industries Bhd for the year ended 31 December 2002. On 31 March 2003, the audited financial statements were issued to the shareholders. On 5 April Pang was informed that a severe flood had occurred at the company's factory and warehouses in Penang. The flood had destroyed all the inventory and damaged all the plant and machinery at the factory. The management of KBN indicated to the auditors that the inventory plant and machinery of the company were grossly under insured. Required: a. Explain the meaning of the term 'subsequent events" as it is used in ISA 560. b. What course of action should Pang & Co, take with respect to the above events? subsequent cents 17-30 The following items of subsequent events are unrelated. For each of the following items, you are to indicate the required accounting treatment of the event. Assume that the external auditor has completed the field work and is preparing the auditor's report on the client's financial statements for the year ended 31 October 2003. 1. A large account receivable from a customer, ABC Company (material to the financial state- ment presentation was considered fully collectible at 31 October 2003. ABC suffered a plant explosion on 28 November 2003. Because ABC was uninsured, it is unlikely that the account will be collected 2. The court ruled in favour of the client company on 26 December 2003. Litigation involved lawsuit from a customer for alleged breach of contract in 2002. The client had provided for the full amount of the potential liability for the claim. The customer will not appeal the court's ruling 3. On 15 December 2003, the client applied to the Securities Commission for the issuance of 20 million new ordinary shares of RM 1.00 each. The proposed new issue represents 10% of the issued and paid up share capital of the company as at 31 October 2003. 4. On 22 December 2003, P. Sam, a major investment adviser, issued an unfavourable report on the client company's long-term prospects. The share price of the company subsequently declined by 30 percent 5. At its 5 November 2003 meeting, the board of directors decided to increase substantially the advertising budget for the coming year and authorised a change in advertising agencies. 6. On 30 November 2003, the company entered into a conditional sale and purchase agreement to acquire a 30% equity interest in Kapas Designs Sdn Bhd at a consideration of RM 1.9 million to be satisfied by cash payment. 17-31 Pang & Co are the auditors for KBN Industries Bhd for the year ended 31 December 2002. On 31 March 2003, the audited financial statements were issued to the shareholders. On 5 April Pang was informed that a severe flood had occurred at the company's factory and warehouses in Penang. The flood had destroyed all the inventory and damaged all the plant and machinery at the factory. The management of KBN indicated to the auditors that the inventory plant and machinery of the company were grossly under insured. Required: a. Explain the meaning of the term 'subsequent events" as it is used in ISA 560. b. What course of action should Pang & Co, take with respect to the above events