You are the supervisor on the audit of Platinum Pokie Club, a big suburban club in Western Australia. And also the usual club facilities like poker machines, bars and a bistro, the club as well operates a large gymnasium, an indoor heated pool and a restaurant.
The given dates are relevant to the present audit engagement:
End of reporting period: 30 June 2012
Financial statements signed: 15 August 2012
Auditor’s report signed: 15 August 2012
Annual report mailed to members: 22 August 2012
You are aware that the given independent and material events have occurred:
1) On 5 August 2012, the financial controller informed you that the board has recently received a letter from the assistant general manager, Mr. Tan. The letter contains a confession: Mr. Tan has been lodging fraudulent expenditure claims over the past 5 years, amounting to some $40,000. The financial controller’s preliminary estimates point out that this figure is materially correct; though he believes it will take at least another 2 months before the exact figure is known. The police had been informed of the fraud and are searching for Mr. Tan, who appears to have left the country.
2) On 17 August 2012, the financial controller informed you that on the prior day a participant on one of the club’s aerobics classes, Ms. Peters, injured herself after slipping on the gym floor. Ms. Peters is the spouse of one of the state’s leading barristers. A preliminary letter has already been received from Mr. Peters, stating that Ms. Peters intends to take lawful action to recover the costs of medical treatment, plus damages from the club.
3) On 18 August 2012, the financial controller informed you that a severe fire occurred at one of the club’s kitchens throughout football celebrations. Though covered by insurance, the fire caused extensive damage to the bistro area and the adjacent bar. Both the bistro and bar are expected to remain unserviceable till at least mid-September, resulting in an expected fall in revenue of around 7%.
4) On 23 August 2012, the general manager informed you that on 18 August 2012 the board decided to sell land it was holding as a long term investment. It seemed that a much generous offer was made by an overseas buyer. The contract is due to be signed on 25 August 2012.
5) On 11 August 2012, the board signed a contract for the upgrade of club’s air-conditioning system. The upgrade is essential to make sure compliance with workers compensation regulations. The first payment of $100,000 is due on 1 September 2012. Work will be completed (and the final contract payment made) by 30 June 2012.
a) Describe what further evidence you would seek in relation to each of such matters.
b) describe the action, if any, you would recommend to management in relation to the accounting treatment of each items.