XYZ Ltd. finalized its financial statements for the year ended 31st March 2025. Audit is in progress and the auditor is expected to issue the report…

XYZ Ltd. finalized its financial statements for the year ended 31st March 2025. Audit is in progress and the auditor is expected to issue the report in July, 2025. On 10th April 2025, a major debtor of the company was declared insolvent and the company realised that the amount due from this debtor as on 31st March 2025 was not recoverable. In the month of May, 2025, the management also initiated discussions for a possible merger with another company. Auditors understand that financial statements may be affected by certain events that occur after the date of the financial statements. Auditors of XYZ Ltd. consider that financial reporting frameworks ordinarily identify two types of events. Explain how you would classify and deal with these subsequent events.