Subsequent Events Facts:
You are performing an annual audit of a company with a December31, 20X1 year-end. Your firm is planning to complete the audit onMarch 1, 20X2 and release the report on March 31, 20X2. On March15, 20X2, two material subsequent events occur:
• A fire caused extensive damage to the company’s manufacturingplant in New Jersey.
• A large customer went bankrupt. At December 31, 20X1, theCompany had a receivable of $2,500,000 from this customer; atDecember 31, 20X1 the Company had established an allowance fordoubtful accounts of $700,000 for this customer.
Required:
1. Explain whether each subsequent event is a Type 1 or Type 2Subsequent Event.
2. What is the impact of each subsequent event on the company’saudited financial statements for the year ended December 31, 20X1?Be specific as to whether (a) there will be an adjustment whichwill cause the company’s balance sheet and / or income statement tochange plus footnote disclosure, (b) there will only be footnotedisclosure, or (c) there will be no impact to either the financialstatements or the footnote disclosures.
3. How should your Audit Firm date its audit report?
