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The financial year of ABC Pty Ltd (ABC) ended on 30 June 2018. Your auditors report was signed on 25 August and the financial statements

The financial year of ABC Pty Ltd (ABC) ended on 30 June 2018. Your auditors report was signed on 25 August and the financial statements were issued on 10 September. Listed below are events that occurred or were discovered after the end of the financial year. Assume that each has a material effect on the financial statements.

  1. 30 June one of ABCs largest debtors informed ABC that it was experiencing serious financial difficulties. On 25 August, ABC was informed that the debtor had gone into receivership. Preliminary reports suggest ABC will recover only 10 cents in the dollar of the outstanding debt.

  2. 1 September you discovered that a legal action commenced against ABC in relation to a faulty product sold in May 2017.

  3. 12 September a fire burnt down one of ABCs warehouses, resulting in a loss of 10% of the inventory that was on hand at that date.

REQUIRED:

  1. (a) Indicate your responsibilities and specific audit procedures for EACH of the above events.

  2. (b) Indicate the correct accounting treatment in the financial statements (if any) you would recommend in relation to EACH of the event.

  3. (c) What if the management did not agree with your recommendation in (b) and takes no action, what would be your Audit Opinion in EACH event and why?

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