The timeline for the release of Fishy Story Ltd’s 30 June 2020 financial statements is as follows:

•             30 July 2020: Financial statements approved and signed by the directors and the auditors’ report is signed later on the same day.

•             15 August 2020: Financial statements issued.

The following material, as yet unrecorded information, obtained as the result of audit procedures performed subsequent to year end, has come to light:

i.              On 23 July 2020, Free Divers Pty Ltd (a supplier to Fishy Story) issued an additional invoice amounting to $20,000 pertaining to urgent repairs on fishing pens in Macquarie Harbour. Free Divers attended to urgent repairs during a weekend in June, as a result of a once-in-10-year storm that hit the west coast of Tasmania. Fishy Story disputes the invoice as they argue it was already invoiced at the end of June, as part of the normal monthly maintenance contract. Your initial investigation suggests that the dispute will likely result in litigation.

ii.             On 5 August 2020, one of Fishy Story’s fishing vessels was transporting fish on the Huon river. When approaching the wharf, the captain of the boat lost control and ran into a yacht moored at the wharf. The estimated damage to the yacht is $250,000. Fishy Story’s insurers are refusing to pay out as the captain involved tested positive for a prohibited substance subsequent to the event.

iii.            On 28 July 2020, The Tasmanian Environmental Protection Authority issued a $150,000 fine for ecological damage caused by Fishy Story in 2018. The fine was issued for the illegal discharging of wastewater from the company’s fish cleaning operations. The company issued a media statement expressing regret for the unfortunate incident but indicated that in their opinion, no permanent damage was caused.

iv.           During July 2020, Fishy Story was awarded a license to farm fish in Storm Bay, near Hobart, Tasmania. The process of applying for the license started in 2017. New Nets Pty Ltd has an exclusive supply contract with Fishy Story. A term of the contract is that New Nets must supply and install nets within 30 days from any new licenses being awarded to Fishy Story, to meet the terms of conditions of the license. The total cost of the nets, including their installation, is $150,000. The nets were installed and invoiced in July, and operations commenced on 1 August 2020.

v.            On 10 August 2020, a violent community protest over the new Storm Bay operations erupted. Extensive damage was caused to the newly installed fishing nets in (iv) above. The insured loss of assets was estimated to be $100,000. The loss of current and future profits and the extent of insurance was not quantifiable at the date of signing of the audit report.

Required

Using Table 4 below, for each of the abovementioned events:

a.            Evaluate the results of the audit procures, and for the purposes of forming an audit opinion, explain whether it is an adjusting or non-adjusting event.

b.            Interpret and explain the auditing concepts and/or principles which impact on the specific aspects of the financial statements (if any). If there is no impact explain why.

c.             Describe the action the auditor should take by interpreting the relevant auditing standards). References must be shown.

Answer rating: 100% (QA)

The auditors responsibility for detecting these events is explained in ASA 560 Subsequent Events Prior to completing field work the auditor shall cons... View the full answer