Question 1
State the two primary types of subsequent events that require consideration by management and evaluation by the auditor, and give two examples of each type.
Question 2
The fieldwork for the December 31, 2018 audit of Schmidt Corporation ended on March 17, 2019. The financial statements and auditor's report were issued on March 29, 2019. In each of the material situations (1 through 5) below, indicate the appropriate action (a, b, c). The possible actions are as follows
| a. | Adjust the December 31, 2018 financial statements. |
| b. | Disclose the information in a footnote in the December 31, 2018 financial statements. |
The situations are as follows:
________ 1. On March 1, 2019, one of Schmidt Corporation's major customers declared bankruptcy. The customer's financial condition in 2018 was deteriorating and they owed Schmidt Corporation a large sum of money as of the balance sheet date.
________ 2. On February 17, 2019, Schmidt Corporation sold some machinery for its book value.
________ 3. On February 20, 2019 a flood destroyed the entire uninsured inventory in one of Schmidt's warehouses.
________ 4. On January 5, 2019, there was a significant decline in the market value of the securities held for resale from their value as of the balance sheet date.
________ 5. On March 10, 2019, the company settled a lawsuit at an amount significantly higher than the amount recorded as a liability on the books as of the balance sheet date.
Examples of USP labels Source: Courtesy of Novartis Pharmaceuticals Corporation and Mallinckrodt Pha
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