The financial year end of Club Y Inc. is 30 June 2021. A fire broke out at one of Club Ys premises on 26 July 2021 destroying some machinery and 90% of inventory. The insurance company was informed and an investigation showed that the Club manager was at fault by not following safety procedures and, as a result the insurance company has refused to accept the claim.

Describe how this issue should be treated in the financial report for the year ended 30 June 2021, and identify any further information the auditor will require to arrive at a conclusion as to the appropriate treatment of this issue. (6 marks)