Your firm is responsible for the audit of Pick and Pay Ltd, a listed company with a year ended 31 December 2020.

 

A court case began in October 2020 involving an ex-employee who is suing Pick and Pay Ltd for unfair dismissal. A confirmation letter was received from the company's lawyers on 10 January 2021, which estimates that damages of $60,000 are probable to be paid. The amount is material. The financial statements for the year ended 31 December 2020 include a note disclosing the court case and quantifying the potential damages but the amount is not included in the Statement of Financial Position.

 

Required

Explain whether the current treatment of the probable damages in the financial statements for the year ended 31 December 2020 is appropriate.