(b) Legal action
– Possible cash payment material by monetary amount and by nature
– Going concern implication to be assessed due to size of possible cash outflow
– Treatment as a contingent liability appears correct
– Further actions (1 mark each):
o Review post year-end legal correspondence
o Confirm financing in place in the event of amount becoming payable
o Read note to accounts to ensure complete and accurate
– Emphasis of Matter paragraph to highlight the significant uncertainty
– Content and position of the Emphasis of Matter paragraph
Maximum marks 6