Question:
A. Explain the difference between an adjusting event and a non-adjusting event?
B. Explain what the auditor's responsibilities are with respect to subsequent events happening between balance date and date of auditor's report.
C. In the audit of Revor Tools Company for the year ended 30 June 2016, the field work finished on 30 August 2016. Glamour, a senior audit team member, lists the following items that she considers material for review by the engagement manager.
a. A $6 000 sale on 15 July 2016 for fabrication tools that was included in inventory at a cost of $15 000.
b. Bonds that were issued on 18 August 2016 in the amount of $10 000 000.
c. Equipment purchased on 30 July 2016 for the amount of $105 000.
d. A major customer filed for bankruptcy on 15 July 2016, with the balance shown on 30 June 2016 being $12 000.
e. A legal action in the amount of $150 000 was settled on 6 August 2016 and is listed as a contingent liability on the financial statements ending 30 June 2016.
Required: For each item listed above:
i. List an audit procedure that Glamour may use to discover the item.
ii. What is the appropriate treatment of each of these five items on 30 June 2016 financial statements, assuming each one is material?