ACCT704 Auditing- Accounting Treatments for Each Event



Better Spirit Ltd operates eight bars in Auckland and two bars in Hamilton .Th They also have a brewery, which supplies beers to their bars and sells to liquor stores in Auckland. Each bar is considered to be a Cash Generation Unit (CGU). The audit fieldwork for Better Spirit Ltd’s 30 June 2021 fin andal statements was completed on 10 August 2021. Both the auditor’s report and financial statements were signed on 15 August 2021, and the financial statements were mailed to shareholders on 30 August 2021. During your subsequent events review, you noted the following independent and material items:

1. Better Spirit has been involved in a legal dispute with a competitor for a number of years. On 27 July, you discovered that Better Spirit had settled the legal action out of court on the condition that Better Spirit pay $1 million in compensation by 30 September 2021.
2. The New Zealand government announced a level 4 lockdown for New Zealand on 17 August to combat a Covid Delta outbreak. As a result, all bars were not allowed to operate. The management of the company estimates that trading wou Id resu me in October 2021.
3. On 1 September, the General Man ager informed you that on 17 August, one of the customers complained about the taste of their beers (assu ming th e business is an essential bu sin ess), as a result, on 20 August, the company decided to recall a batch of beers which was produ ced on 10 August.

(a) Discuss th e auditor’s responsibilities for each of the three subsequent events outlined above, based on ISA (NZ) 560. (Your answers sh ou Id apply the requirements in the auditing standards with the case scenario above).
(b) Discuss the appropriate accoun tingtreatmen t(s)for each of the above subsequent events on the 2021 financial statements.
(c) Identify the audit procedures required to verify whether th e management has applied appropriate accounting treatments for each event.

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