Company B is a calendar year end private energy company. A bank (debt) covenant requires Company B to provide audited financial statements in accordance with US GAAP. Auditor A is performing audit procedures for calendar year 2020 in spring of 2021. During the audit procedures and before the audit report has been finalized, Auditor A is informed by management and legal counsel that its fleet of oil tankers sunk to the bottom of the ocean in January 2021 and Company A will be liable for remediation and potentially face fines, damages, and other costs. Management thinks it is probable that the spill will have material financial consequences, but it is too early to estimate the amount. Select the correct statement below:

a.

This is a Type I subsequent event. Company A should book a contingent liability in 2020 and disclose this event in its audited financial statements for 2020.

b.

This is a Type II subsequent event. Company A should not book anything in 2020, but should disclose relevant facts in its 2020 audited financial statements as a subsequent event.

c.

This is a Type I subsequent event. Company A should not book anything in 2020, but should disclose the facts in its 2020 audited financial statements as a subsequent event.

d.

This is a Type II subsequent event. The Company should book the expected financial impact in 2020 and disclose the matter.

Answer rating: 100% (QA)

The correct answer is Option b This is a Type II subsequent event Company A shou... View the full answer