During her examination of the financial statements of Consolidated Manufacturing Company for the year ended December 31,

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Question:

During her examination of the financial statements of Consolidated Manufacturing Company for the year ended December 31, 2009, Lesley Swift, CA became aware, through her normal audit procedures, of the following events or transactions which occurred during 2010 but prior to the completion of the audit field work:

(a) One of the company's warehouses was damaged in a flood, resulting in an uninsured loss of finished goods inventories,

(b) A major customer filed for voluntary bankruptcy, after experiencing cash flow problems for several years. The company expects to eventually collect about one-fourth of the year-end accounts receivable from this customer. This event was not anticipated when the company recorded its normal provision for uncollectible accounts at December 31, 2009.

(c) On January 5, the company shipped a large order to a customer. However, since the production of these items was almost complete at December 31, 2009, the sales transaction and the related cost of goods sold were recorded in December 2009. Lesley observed the taking of the annual physical Inventory on November 30, 2009,

(d) The company was sued by a former employee claiming personal injury in an industrial accident which occurred in June 2009, the company is self insured against these types of claims,

(e) The company issued and sold to the general public $10,000,000 of convertible subordinated debentures.

NOTE: Assume that the relevant dollar amounts in each of the above transactions or events are material to the financial position and results of operations of Consolidated Manufacturing Company.

REQUIRED:

Describe the audit procedure(s) which an auditor would normally perform to detect each of the above items and explain how each item could affect the financial statements and auditor's report.