Auditor's suggestion?

Question

There was a legal case against the client raised in July 2006 but nothing was recorded in financials. In January 2007 the court ruled that a client should pay 100 mln. RR as a legal compensation. Describe the auditor’s suggestion to the client. Be very specific and brief

Answer 1

The auditor would tell the client to recognise the compensation in its 2006 financials for the year ended Dec 31, 2006 since this falls under the definition of an adjusting event after the balance sheet date. An entity shall adjust the amounts recognised in its financial statements to reflect adjusting events after the balance sheet date. [IAS 10.8]

IAS 10.9 - The following are examples of adjusting events after the balance sheet date that require an entity to adjust the amounts recognised in its financial statements, or to recognise items that were not previously recognised:
(a) the settlement after the balance sheet date of a court case that confirms that the entity had a present obligation at the balance sheet date. The entity adjusts any previously recognised provision related to this court case in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets or recognises a new provision. The entity does not merely disclose a contingent liability because the settlement provides additional evidence that would be considered in accordance with paragraph 16 of IAS 37.

Answer 2

The client may want representation from some one not looking at yahoo answers for suggestions.