The Fieldwork for the December 31, 2016 Audit of Treble

question 22

Short Answer

The fieldwork for the December 31, 2016 audit of Treble Corporation ended on March 17, 2017. The financial statements and auditor's report were issued and mailed to stockholders on March 29, 2017. In each of the material situations (1 through 5) below, indicate the appropriate action (a, b, c, d, or e). The possible actions are as follows:
a. Adjust the December 31, 2016 financial statements.
b. Disclose the information in a footnote in the December 31, 2016 financial statements.
c. Request the client revise and reissue the December 31, 2016 financial statements. The revision should involve an adjustment to the December 31, 2016 financial statements.
d. Request the client revise and reissue the December 31, 2016 financial statements. The revision should involve the addition of a footnote, but no adjustment, to the December 31, 2016 financial statements.
e. No action is required.
The situations are as follows:
________ 1. On January 16, 2017 a lawsuit was filed against Treble for a patent infringement action that allegedly took place in early 2014. In the opinion of Treble's attorneys, there is a reasonable (but not probable) danger of a significant loss to Treble.
________ 2. On February 19, 2017, Treble settled a lawsuit out of court that had originated in 2015 and is currently listed as a contingent liability.
________ 3. On March 30, 2017, Treble settled a lawsuit out of court that had originated in 2014 and is currently listed as a contingent liability.
________ 4. On February 2, 2017, you discovered an uninsured lawsuit against Treble that had originated on August 30, 2013. There is a reasonable (but not probable) danger of a significant loss to Treble.
________ 5. On April 7, 2017, you discovered that a debtor of Treble went bankrupt on January 22, 2017, due to a major uninsured fire that occurred on January 2, 2017.

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Definitions:

Disc Brakes

A type of brake system where brake pads apply pressure to a disc or rotor attached to the wheel, slowing or stopping the vehicle.

Drum Brakes

A type of brake that uses friction caused by a set of shoes or pads that press outward against a rotating cylinder-shaped part called a drum.

Brake Fade

The reduction in braking power that occurs after repeated or sustained use, often due to overheating of the brake components.

Hydraulic

Relating to a system operated by the motion and pressure of fluids, used in various applications including machinery and vehicle brakes.