There are two types of subsequent events (Type 1 and Type 2). Briefly describe both types and indicate how each type is treated in the financial statements.(3 marks)

The following events occurred in independent cases, but in each instance the event happened after the close of the fiscal year under audit but before all members of the audit team had left the office of the auditee.For each case, identify as a type I or II subsequent event and state what disclosure, if any, you would expect in the financial statements (and notes).The balance sheet date in each instance is December 31, 2016.

1.On January 22, 2017, one of the auditee's three major plants burned down, a $50 million loss that was covered to $40 million by insurance.

2.On the December 31, 2016 statements, the auditee has disclosed a pending lawsuit against it for copyright infringement and set up a liability for an estimated potential loss of $30,000.On January 31, 2017, the trial was completed and the settlement against the auditee turned out to be $750,000.