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Question

You have undertaken the audit of a Darwin based company, Top End
Constructions Limited (Top End Constructions) for the year ended 30 June 2013.
Your audit report was signed on 30 August 2013 and the financial statements were
issued on 10 September 2013. Listed below are events that occurred or are
discovered after the end of the financial year. Assume that each event has a
material effect on the financial statements.
(a) 1 August 2013 $1million lawsuit was filed against Top End Constructions for
damages for defective construction that allegedly occurred before 30 June 2013. In
the opinion of the company lawyers, there is a reasonably strong case against NT
Constructions.
(b) 15 August 2013 You discovered that Lifestyle Homes, a major debtor of
Top End Constructions went bankrupt on 10 August 2013. There was a material
sale that had taken place on 1 June 2013 but the amount remained unpaid and
appeared as a receivable at the date on which the audit report was signed.
(c) 15 September 2013 a fire burnt down one of Top End Constructions
warehouse, resulting in a loss of 30% of the equipment that was on hand at that
date.
(d) 30 September 2013 you discovered that a loan to a related company, NT
Buildings Pty Limited (NT Buildings) is uncollectable as the company is now in
receivership. The loan was provided to NT Building on 10 April 2013, however no
attempts to recover the loan were made as the directors of NT Buildings and Top
End Constructions are brothers.
(e) 30 September 2013 You discovered that Resorts Outback another debtor of
Top End Constructions went bankrupt on 25 September 2013. The sale to Resorts
Outback had taken place before the end of the year end, but the amount had
appeared collectable at the date on which the auditors report was signed.
Required: Indicate your audit responsibility for each of the above five events.
Indicate the type of disclosure (if any) you would recommend in relation to each of
the five events
Answer
Event Occurring after Balance Sheet date but prior to date of Issue of Financial Statement are Two
Types1- Event Occurring after balance sheet date having financial significance, which provides more
information about the conditions existing at balance date and such event should be adjusted in
Financial statement. These Events are called Adjusting Event.
2- Event Occurring after balance sheet date that does not required to adjust but only Disclosure of
Such event are required. These events are called Non-Adjusting Events.

A)- On 1st Aug. Case is filed against company about damages for defective construction that
allegedly occurred before balance date (30 June 2013), this is clear that event exist at balance sheet
date and should be adjusted in financial Statement of 30 June 2013.
B)- On 15 Aug.2013 avent occurred that provide additional information about item exist at balance
Date. There was a material sale had taken place on 1 June 2013 and additional information are so
significant that debtor of Top End Constructions went bankrupt on 10 August 2013, it is clear that
debtors became irrecoverable and such Debtors should be written off on financial statement of 30
june 2013.
C)- An event occurring after the balance sheet date shall be an adjusting event if it does not reflect
any condition existing on the balance sheet date, if the event is such as to indicate that the
fundamental accounting assumption of going concern is no longer appropriate. In given case fire
occurred on 15 September, i.e. after financial statement was issued but event is so material that
fundamental going concern assumption effected because 30% of equipment are destroyed, hence
this is adjusting event and should be adjusted in financial statement.
D)- Event occurred on 30 Sept.2013 provide information about non collectibility of Loan given to
related part. This event is not related to condition exist at balance date and even event is occurred
after financial statement are issued, hence such event does not require adjustment or disclosure.
E)- EVENT occurred after signing balance sheet hence only disclosure required.