The financial year of Ankh Ltd ended on the 30 June 2016. Your auditor report was signed on 2 September 2016 and the financial statements issued on 16 September 2016. The events below occurred or were discovered after the end of the financial year. Assume each has a material effect.

24 July A lawsuit was filed against Ankh for damages that allegedly occurred before 30 June. According to lawyers, there is a danger of significant loss.

18 September - You discovered that a major debtor of Ankh's went bankrupt on 29 August. The sale had taken place before year end but the amount had appeared collectable when the audit report was signed.

1 September Ankh agreed to purchase a wholly owned subsidiary for cash. The acquisition is likely to double the sales volume of Ankh.

Required: a) Explain the auditors responsibility for identifying and acting on events after the end of the reporting period.

b) For each of the above situations 1 to 3, identify the type of subsequent event and the potential accounting effect.