You Are Auditing Green Corporation for the Calendar Year 2009

question 16

Essay

You are auditing Green Corporation for the calendar year 2009.Among other items related to the audit, Green is being sued for personal injury resulting from the malfunction of one of its products.Sue Ewe filed the lawsuit in September 2001.The officers of the company and its outside legal counsel estimate that the loss from the suit will be approximately
$250,000.This amount has been accrued and properly disclosed in the footnotes of the financial statements.You have no reason to believe that the estimate is wrong.You completed your audit and dated your report March 2, 2010.The financial statements were issued on March 14, 2010.The trial was in progress at that date.On March 20, 2010 you read in a national business periodical that the jury in the trial awarded Sue Ewe $1.5 million.
Required:
Discuss the nature of these events and what responsibility you have, if any, regarding the news of March 20.

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Definitions:

Volatility

A statistical measure of the dispersion of returns for a given security or market index, indicating the degree of variation from the average.

Hedge Ratio

A ratio used to calculate the number of derivatives needed to hedge a particular position, aiming to provide protection against adverse price movements.

Dollar Change

The difference in the price of a security from one trading period to the next, expressed in dollars.

Exercise Price

The amount for which someone holding an option is allowed to buy (for call options) or sell (for put options) the base asset.