West Midlands Smooth dairies, manufacture a range of dairy products like milk, cheese and yoghurt in one factory. The products are stored in a rented warehouse which is nearby the West Midlands Smooth factory. Products are sold to over 300 supermarkets located within a 250km radius of the companys factory. The products have an average shelf life of ten days. The companys financial statement year-end is 30 September 2020. It is now three months since the year end at your audit client of West Midlands Smooth and the annual audit is almost complete, but the auditors report has not been signed. The following events have just been brought to your attention. (Note: all these events occurred in mid-December)

Bankruptcy of a major customer representing 15% of the trade receivables on the statement of financial position.

A batch of cheese produced by the company was found to contain some chemical impurities. Over 500 customers have complained about food poisoning after eating the cheese. 150 supermarkets have stopped purchasing West Midlands Smooths products and another 90 are considering whether to stop purchasing from West Midlands Smooth. Lawyers acting on behalf of the customers are now presenting a substantial claim for damages against West Midlands Smooth.

A fire in the warehouse rented by West Midlands Smooth has destroyed 60% of the inventory held for resale.

Required:

a) Describe the auditors responsibilities with regard to subsequent events. In respect of EACH of the events at West Midlands Smooth mentioned above:

b) State with reasons, whether or not the financial statements for the year-end require amendment and;

c) Discuss whether or not the audit report should be modified.