The audit field work for SJ Corner Ltd is now completed on 25 May 2020. Both the auditor's report and financial statements is expected to sign off on 30 May. As part of the completion procedures, you have performed a final review of the audit file. The following events have occurred subsequent to the year-end but before the signing of the audit report. No amendments or disclosures have been made in the financial statements.

1.An explosion occurred at the warehouse in Nelson on 6 April. This resulted in some damage to inventory and property, plant and equipment. SJ Corner's management have investigated the cause of the explosion and believe that they are unlikely to be able to claim on their insurance. The management has estimated that the value of damaged inventory and property, plant and equipment was $900,000 and it now has no scrap value.

2.SJ Corner undertakes extensive quality control checks before dispatching products. Testing on 4 April found that a batch of products produced in March was defective. The cost of producing this batch was $850,000. In its current condition it can be sold at a scrap value of $100,000. The costs of correcting the defect are too significant for SJ Corner's management to consider this option.

3.On 7th May SJ Corner was informed by three major long-standing customers in Asia, and USA that they were having going concern problems due to the impact of the Covid19 pandemic; and that paying the amounts owed to SJ Corner was going to be very difficult. The CFO, Sophie, believes that it is not necessary to adjust the receivable balance as at 31 March 2020 because these customers will pay eventually.

4.On 27 May, a newspaper published a research suggesting that some cleaning products (i.e., rug, carpet, upholstery cleaners) containing perchloroethylene, naphthalene and ammonium hydroxide. The fumes from these products may increase the chance of cancer and liver damage. Previously, they have been known to cause dizziness, sleepiness, nausea, loss of appetite, and disorientation. The government has now launched an investigation into the effects on health and may subsequently ban the use of these chemicals. SJ Corner has been using these chemicals in producing 35% of their products. If they are banned, SJ Corner's revenue will be largely affected.

Required:

For each of the above events:

1.Explain the auditors' responsibilities for identifying and auditing subsequent events.

2.For each subsequent event, discuss audit procedures that may detect the event and assess the potential impact on the 2020 financial statements.

3.Briefly discuss how the above events may impact on the audit opinion you are going to provide.