The financial year of Sherlon Ltd ended on 30 June 2015. Your auditor’s report was signed on 25 August and the financial statements were issued on 10 September. Listed below are events that occurred or were discovered after the end of the financial year. Assume that each has a “material” effect on the financial statements.

1. 1 August — A lawsuit was filed against Sherlon for damages that allegedly occurred before 30 June. In the opinion of Sherlon’s lawyers, there is a danger of a significant loss.

2. 15 August — You discovered that Karlo, a debtor of Sherlon went bankrupt on 10 August. The most recent sale had taken place on 25 May and no transactions had occurred since that date.

3. 1 September — You discovered that a legal action commenced against Sherlon in relation to a faulty product sold in May 2015.

4. 15 September — A fire burnt down one of Sherlon’s warehouses, resulting in a loss of 30% of the inventory that was on hand at that date.

5. 30 September — You discovered that Kingberly, a debtor of Sherlon, went bankrupt on 15 July. Sales to Kingberly were all made before the end of the year

6. 30 September — You discovered that Allen, a debtor of Sherlon, went bankrupt on 25 September. The sale had taken place before the end of the year, but the
amount had appeared collectable at the date on which the auditor’s report was signed.

Required:

(a) Indicate your responsibilities for each of the above events.

(b) Indicate the type of disclosure (if any) you would recommend in relation to each of the six events.

Answer rating: 100% (QA)

a b Events after reporting period are those events favourable and unfavourable that occur between the end of the reporting period and the date when the financial statements are approved by the board o... View the full answer