Your audit team is in the process of completing the audit for the year ended 31 December 2017. Today is 15 Feb 2018. The audit is nearly complete and the financial statement and the audit report are due to be signed on or before 21 February 2018. he finance director has just notified the following additional information Assume each situation are considered to be material.

i)A court case related to the dispute with customer during the year 2017 was settled on 20 January 2018. Under the final court order, a compensation of $9,000,000 (90% of profit before tax) needs to be paid. The finance director has included a note disclosure in the finance statements about the court case without making any provision for the year ended 31 December 2017.

ii)On 20 Jan 2018, an earthquake occurred at the warehouse located in Japan. This natural catastrophe resulted in extensive damage to 40% of the Company's inventories with an amount of $700, 000 (7% ofProfit before tax). No adjustment and disclosure related to the earthquake is provided in the 31 December 2017 financial statements.

a) Explain whether it is an adjusting or non-adjusting event according to HKAS 10 events after reporting period. Explain how this event will affect the financial statements of ABC limited as 31 December 2017

b) Explain your responsibility as an auditor and the audit procedures that should be carried in respect of this subsequent event.