Suppose the Environmental Protection Agency is in the process of investigating Ozone Ruination Limited for possible environmental damage but has not proposed a penalty as of December 31, 2013, the company’s fiscal year-end. Describe the two-step process involved in deciding how this unasserted assessment should be reported.
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Suppose the Environmental Protection Agency is in the process of investigating Ozone Ruination Limited for possible environmental damage but has not proposed a penalty as of December 31, 2013, the company’s fiscal year-end. Describe the two-step process involved in deciding how this unasserted assessment should be reported.
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- Suppose the Environmental Protection Agency is in the process of investigating Ozone Ruination Limited for possible environmental damage but has not proposed a penalty as of December 31, 2020, the company’s fiscal year-end. Describe the two-step process involved in deciding how this unasserted assessment should be reported.The Environmental Protection Agency (EPA) is in the process of investigating a possible water contamination issue at the manufacturing facility of Northwest Forest Products. The EPA has not yet proposed a penalty assessment. Management feels an assessment is reasonably possible, and if an assessment is made, an unfavorable settlement is estimated between $20 and $30 million. How should Northwest Forest Products report this situation in its current financial statements?The Company believes that there are no compliance issues associated with applicable environmental laws and regulations that would have a material adverse effect on the Company. The Company is also remediating environmental contamination resulting from past industrial activity at certain of its sites. Expenditures for remediation and environmental liabilities were $20 million in 2013, $14 million in 2012 and $25 million in 2011, and are estimated at $117 million in the aggregate for the years 2014 through 2018. These amounts do not consider potential recoveries from other parties. The Company has taken an active role in identifying and providing for these costs and, in management's opinion, the liabilities for all environmental matters, which are probable and reasonably estimable, have been accrued and totaled $213 million at December 31, 2013. Although it is not possible to predict with certainty the outcome of these environmental matters, or the ultimate costs of remediation,…
- Production at the Paint Company’s factory was halted for one day when a truck carrying dye used in the production process overturned in the Rio Bobre River causing the contamination to the water supply system in the area. The Environmental Agency is currently considering whether the release of dye was in breach of environmental legislation. The company’s insurers have not yet commented on the event. Assume that the date is now 20 December 2019, the financial statements and the audit report have just been signed and the report is to be presented to the Board of Directors on 10 January 2020. The Environmental Agency has issued a report stating that Paint Company is in breach of environmental legislation and a fine of $10.5M will now be levied on the company. The amount is material to the financial statements. Required: Explain the additional audit work the auditor should carry out in respect of this fine. The auditors are considering to modify their audit opinion. Do you agree or…Presented below is a note disclosure for Matsui Corporation. Litigation and Environmental: The Company has been notified, or is a named or a potentially responsible party in a number of governmental (federal, state and local) and private actions associated with environmental matters, such as those relating to hazardous wastes, including certain sites which are on the United States EPA National Priorities List (“Superfund”). These actions seek clean-up costs, penalties and/or damages for personal injury or to property or natural resources. In 2020, the Company recorded a pre-tax charge of $56,229,000, included in the “Other expense (income)—net” caption of the Company’s consolidated income statements, as an additional provision for environmental matters. These expenditures are expected to take place over the next several years and are indicative of the Company’s commitment to improve and maintain the environment in which it operates. At December 31, 2020, environmental accruals amounted…Presented below is a note disclosure for Matsui Corporation. Litigation and Environmental: The Company has been notified, or is a named or a potentially responsible party in a number of governmental (federal, state and local) and private actions associated with environmental matters, such as those relating to hazardous wastes, including certain sites which are on the United States EPA National Priorities List (“Superfund”). These actions seek clean-up costs, penalties and/or damages for personal injury or to property or natural resources. In 2017, the Company recorded a pre-tax charge of $56,229,000, included in the “Other expense (income)—net” caption of the Company’s consolidated income statements, as an additional provision for environmental matters. These expenditures are expected to take place over the next several years and are indicative of the Company’s commitment to improve and maintain the environment in which it operates. At December 31, 2017, environmental accruals amounted…
- The following three independent sets of facts relate to contingent liabilities: 1. In November of the current year, an automobile manufacturing company recalled all pickup trucks manufactured during the past two years. A flaw in the battery cable was discovered and the recall provides for replacement of the defective cables. The estimated cost of this recall is $3.3 million. 2. The EPA has notified a company of violations of environmental laws relating to hazardous waste. These actions seek cleanup costs, penalties, and damages to property. The company is reasonably certain there will be cost associated with the cleanup, but cannot estimate the amount. The cleanup cost could be as high as $4,130,000 or as little as $630,000 and insurance could reimburse all or part of the cost. There is no way to more accurately estimate the cost to the company at this time. 3. Holland Company does not carry property damage insurance because of the cost. The company has suffered substantial losses each…It is assumed that this year the company also changed the location of the production line to a new factory. One of the conditions that allows production in the new factory is that company must, at the end of the useful life of factory, dismantle the factory and repair any environmental damage caused to the land on which it is situated. Require: For this information, identify the audit risk to be consider in planning audit and audit procedures to response these risk.At April 1, 2017, the Food and Drug Administration is in the process of investigating allegations of false marketing claims by Hulkly Muscle Supplements. The FDA has not yet proposed a penalty assessment. Hulkly’s fiscal year ends on December 31, 2016. The company’s financial statements are issued in April 2017. Required: For each of the following scenarios, determine the appropriate way to report the situation. Explain your reasoning and prepare any necessary journal entry. 1. Management feels an assessment is reasonably possible, and if an assessment is made an unfavorable settlement of $13 million is reasonably possible. 2. Management feels an assessment is reasonably possible, and if an assessment is made an unfavorable settlement of $13 million is probable. 3. Management feels an assessment is probable, and if an assessment is made an unfavorable settlement of $13 million is reasonably possible. 4. Management feels an assessment is probable, and if an assessment is made an…
- The following three independent sets of facts relate to contingent liabilities: In November of the current year, an automobile manufacturing company recalled all pickup trucks manufactured during the past two years. A flaw in the battery cable was discovered and the recall provides for replacement of the defective cables. The estimated cost of this recall is $2.1 million. The EPA has notified a company of violations of environmental laws relating to hazardous waste. These actions seek cleanup costs, penalties, and damages to property. The company is reasonably certain there will be cost associated with the cleanup, but cannot estimate the amount. The cleanup cost could be as high as $4,010,000 or as little as $510,000 and insurance could reimburse all or part of the cost. There is no way to more accurately estimate the cost to the company at this time. Holland Company does not carry property damage insurance because of the cost. The company has suffered substantial losses each of the…Problem 1. You were engaged for the first time to audit the FS of Bebeko Corporation for the periodended December 31, 2020. The company started its operation in 2018. In reviewing the books, theauditor discovered that certain adjustments had either been overlook or improperly recorded at theend of years to 2020. Omissions and other failures for each year are summarized below:Grapes Company provided the following selected transactions related to contingencies. The fiscal year ends on December 31, 2023. Financial statements were issued on April 1, 2024. a. In December 2023, Grapes became aware of an engineering flaw in a product that poses a potential risk of injury. As a result, a product recall appears inevitable. This move would likely cost the entity P2,800,000. b. In November 2023, the City of Manila filed suit against the entity. Grapes government is asking civil penalties and injunctive relief for violations of clean water laws. Grapes reached a settlement with the city Government to pay P3,200,000 in penalties on February 15, 2024. c. Grapes is the plaintiff in a P4,000,000 lawsuit filed against a customer for costs and lost profit from contract rejected in 2023. The attorney advised that it is probable that Grapes will be awarded P3,000,000. On March 20, 2024, Grapes won the case and received P3,500,000. What amount should be reported as…