this is auditing homework. the field work for the June 30, 20X7 audit of the Tau
ID: 2471107 • Letter: T
Question
this is auditing homework.
the field work for the June 30, 20X7 audit of the Tau Brewing Comany was finished on august 19, 20X7, and the completed financial statements, accompanied by the signed audit reports, were mailed September 6, 20X7. Consider each of the following subsequent events listed below to be highly material.
(a) On December 14, 20X7, the auditor discovered that a debtor of Tau Brewing went bank rupt on October 2, 20X7. The sale had taken place on april 15, 20X7, but the amount appeared to becollectible at June 30, 20X7 and August 19, 20X7.
(b)On August 6, 20X7, the auditor discovered that a debtor of Tau Brewing went bankrupt on July 30, 20X7. The cause of the bankruptcy was an unexpected loss of a major lawsuit on July 15, 20X7 resulting from a product liability suit by a different customer.
(c)On july 20,20X7, the auditor discovered an uninsured lawsuit against Tau Brewing which had originated on February 28,20X7.
(d)On July 20, 20X7, a lawsuit was field against Tau Brewing for a patent infringement action which allegedly took place in early 20X7. In opinion of legal counsel there is a danger of a significant loss to the client.
(e)On September 14, 20X7, Tau Brewing lost a court case which had originated in 20X6 for an amount equal to the lawsuit. The June 30, 20X7 footnotes state that in the opinion of legal counsel, there will be a favorable outcome to the client and the settlement amount will be less than the amount of the lawsuit.
(f)On August 1, 20X7, Tau Brewing agreed to purchase for cash all of the outstanding stock of Delta, Inc., a small brewery in the same geographical area. The acquisition will probably increase the company's volume by 50%.
REQUIRED: For each of the above subsequent events, indicate the following.
(1) Whether it is a Type I or Type II subsequent event.
(2) What type of action should be taken concerning the subsequent event.
(3) An explanation for your choices in (1) and (2) above.
Explanation / Answer
Type I or Type II subsequent event Actions (a) On December 14, 20X7, the auditor discovered that a debtor of Tau Brewing went bank rupt on October 2, 20X7. The sale had taken place on april 15, 20X7, but the amount appeared to becollectible at June 30, 20X7 and August 19, 20X7. Type II subsequent Event No action required (b)On August 6, 20X7, the auditor discovered that a debtor of Tau Brewing went bankrupt on July 30, 20X7. The cause of the bankruptcy was an unexpected loss of a major lawsuit on July 15, 20X7 resulting from a product liability suit by a different customer. Type I subsequent event Disclose the information in a footnote in the June 30, 2007, financial statements. (c)On july 20,20X7, the auditor discovered an uninsured lawsuit against Tau Brewing which had originated on February 28,20X7. Type I subsequent event Disclose the information in a footnote in the June 30, 2007, financial statements. (d)On July 20, 20X7, a lawsuit was field against Tau Brewing for a patent infringement action which allegedly took place in early 20X7. In opinion of legal counsel there is a danger of a significant loss to the client. Type I subsequent event Disclose the information in a footnote in the June 30, 2007, financial statements (e)On September 14, 20X7, Tau Brewing lost a court case which had originated in 20X6 for an amount equal to the lawsuit. The June 30, 20X7 footnotes state that in the opinion of legal counsel, there will be a favorable outcome to the client and the settlement amount will be less than the amount of the lawsuit. Type II subsequent Event No action required (f)On August 1, 20X7, Tau Brewing agreed to purchase for cash all of the outstanding stock of Delta, Inc., a small brewery in the same geographical area. The acquisition will probably increase the company's volume by 50%. Type II subsequent Event No action required
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