You are the auditor of Asia-Pacific Fresh Pty Ltd (AFPL) for the year ended 30 June 2019.
AFPL is a manufacturer of tinned shellfish products. It purchases fresh shellfish from local suppliers, and frozen shellfish from South East Asia and processes it into tins at its Melbourne factory and then transports it by road to supermarkets around Australia.
You became aware of the following material event:

• On 1 July 2019 a customer at a Perth supermarket purchased a tin of AFPL prawns and took it home to have with dinner. That night she became violently ill and was hospitalised. It was discovered that the cause of her illness was the tin of prawns, which was part of a contaminated batch made from a material batch of shellfish imported from South East Asia. The customer suffered severe pain and paralysis that is likely to be permanent. As a result, she lodged a lawsuit against AFPL on 15 August 2019 for unspecified damages, due to the serious long-term effects of her injuries.
The financial statements and auditor’s report are due to be finalised on 31 August 2019.
The finance director of AFPL is also considering establishing an internal audit department and is unsure what factors he should consider when making his decision.

REQUIRED:

a) Explain how the event identified above should be treated by AFPL in the financial statements. (4 marks)

b) Outline the implications for the auditor’s report, if any, assuming that this event is appropriately treated as per requirement (a). Justify your answer. (2 marks)

c) Determine the type of auditor’s opinion that you should issue if AFPL does not appropriately reflect this event in the financial statements. Justify your answer. (2 marks)

d) Determine the type of auditor’s opinion that you should issue if AFPL will not allow you to obtain a solicitor’s letter concerning the lawsuit. Justify your answer. (2 marks)

Answer rating: 100% (QA)

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