Assume you are auditing Samsung Electronics Co Ltd for the year ended December 31, 2015. On January 22, 2016 a news release announced that Samsung smartphones have been overheating and spontaneously catching fire. Customers have experienced physical harm and/or property damage to vehicles, homes and other personal property. On February 10, Samsung receives notice of a lawsuit from a customer who was burned on January 10th as a result of the spontaneous combustion. In addition, it appears the company may need to recall millions of its phones. Assume you finish the audit work on Feb. 12, 2016. 

1. Does this meet the definition of a subsequent event? (why or why not?) 

2. Type/nature of subsequent event? Disclosure requirements? 

3. Audit procedures to perform? 

4. Assume the event and lawsuit occurred in 2015. Samsung booked an accrual for the lawsuit (the contingent liability) in their draft 2015 F/S; they are unwilling to adjust their financial statements for the potential warranty liability /cost of recall, which is estimated at $5M. 

a. What is the AJE that you would record in your SAD (summary of audit differences) to record the warranty issue? 

b. Assume the amount is not material. You are evaluating total.

Answer rating: 100% (QA)

1 Definition of Subsequent Event Yes this situation meets the definition of a subsequent event Subse... View the full answer