Trendy Ltd is a retail clothing company operating in Australia with annual revenue of around $6 million.
Question:
Trendy Ltd is a retail clothing company operating in Australia with annual revenue of around $6 million. Its products are manufactured by two suppliers in Bangladesh. The financial year-end was 30 June 2020, and the auditor's report was signed on 20 July 2020. On 28 May, the company placed a deposit of $450,000 with one of its suppliers for an order to be delivered on 10 July. On 30 May, the building where the supplier manufactured Trendy's products collapsed. Hundreds of people were killed and injured. The supplier has closed and been under investigation for ignoring safety concerns of the local authority. A discussion on 14 July with the company lawyer indicated that it was unlikely the deposit would be recovered.
(i) Is the event material? Explain your answer considering both quantitative and qualitative aspects.
(ii) What type of subsequent event is this and how should it be treated in the financial report?
(iii) What audit opinion would be appropriate if the directors of Trendy Ltd refuse to revise the regarding the above event? Justify your answer.
Fundamentals of Financial Accounting
ISBN: 978-0078025372
4th edition
Authors: Fred Phillips, Robert Libby, Patricia Libby