14.4 subsqt events

Question 1

subsequent years

Answer 1

1.FS prepared on the basis of conditions at year end.
there are events happening between year end and audit report date. despite happening after end of FS date, these events have implications on the FS and thus should be appropriately disclosed in FS to avoid FS being misleading.

2. adtr responsible for gathering sufficient appropriate evidence up to the adt report date. once audit report signed, adtr no longer repsonsible for identifying subsequent events
3. three key dates:

FS date- when those in authority, taking the responsibility of the FS, assert that the FS together with its relevant disclosures. Adt report not dated yet

Adt report date- it is when adt report is signed. it is not signed earlier tp allow adtr too gather appropriate sufficient evidence in regards to subsequent years and to help form their adt opinion

Adt issurance date: date at which adt report and audited FS become available to third party.

Question 2

subsequent years types

Answer 2

2 types of subsqt years:

type 1: providing evidence for conditions that already existed at end of FS

Type 2 : providing evidence for conditions that arose after end of FS date

Question 3

Type 1subsqt events

Answer 3

provide additional evidence about conditions that existed at the end of financial year

2. will affect estimates inherent in the FS or indicate that the going concern is no longer applicable to the entity or part of it
3. involves adjustment to FS amt

Question 4

Type 1subsqt events examples

Answer 4

1. bankruptcy of client after year end, will be important to consider when evaluating adequacy of of the doubtful debt allowance
2. different Amt than estimated from a lawsuit received after reporting year

3 significant Worsening operating results after suggesting that going concern assumption is no longer valid

4.insurance amt after reporting date for claimed existing at year end.

Question 5

Type 2 subsqt events

Answer 5

1.providing additional evidence about conditions that arose after FS date

2. this will not result in adjustment in amts but rather notes adequately disclosed in the FS when they are of significant to the entity FS

Question 6

Type 2 subsqt events examples

Answer 6

1.uninsured or underinsured factory or inv. destroyed or damaged as a result of a natural calamity

2.purchase of bsn

3. insurance of shares or debentures

Question 7

Prdrs for subsqt events reviews

Answer 7

Prdrs carried out near the date of adt report

1. perform adt prdrs different from usual examination of trsn. however, when usual examination of acc are are performed after FS date esp when checkin for cut-off , appropriateness of at year end carrying amt , adt can already be aware /identify significant events occurring after FS date that shall require adjustment.
2. gaining understanding and evaluating the processes put in place by mgt in relation with susqt events

3.reviewing minutes and enquiring about matters discussed for those meeting without minutes

4.Reading and analyzing the latest available interim FS including budget, cashflow, sales etc.. and see if there are subsqt events that should be considered e.g changes in accounting policies

Question 8

Prdrs for subsqt events reviews

Answer 8

5. enquire from entity legal counsel about any litigation and claims
6. assessing continued compliance with borrowing terms and limits
7. inquiry from mags about:
   -any change in ownership
   -significant change in E/R affecting the estimates of the entity
   -change in status related party trsn
   -sig. assmnt made by tax authority
   -assets that have been seized or destroyed
   -unusual adjustments made since FS date
   -any dvpment regarding risk areas and contingent liabilities

Question 9

Prdrs for subsqt events reviews

Answer 9

adtr will obtain written representations as part of mgt representation letter from mgt which contain key discussion held about the subsqt events and confirming that they are not aware of any other relevant subsqt events

Question 10

adtr responsibility for subsqt event

Answer 10

1.for subsqt events occurring up to the date of the adtr report, FS will be subject to changes

2.if adtr tells client to make amendment and client refuses, a qualified or adverse opinion is issued

3.they can notify client not to issue FS and adt report to any third parties. if fs and adt report issued without the required change, adtr need to take measure to prevent misleading users . this is done by withdrawing adt report or issuing a communication to those receiving the issued FS and adt report.

4. when adt report is signed, no further prdrs can be be performed.

5.if after audited FS and adit report made public, adtr is made aware of a condition that if he had known earlier would have cause FS to be modified,
then adtr should consider:
-whether FS requires revision
-discuss matter with mgt and those charged with governance
- appropriate actions to be taken sush as performing additional prdrs or notifying receivers of the Fs and adt report that revision needs to be done and that new FS snd adt report will be issuedd

Question 11

adtr responsibility for subsqt event

Answer 11

revised adt report cannot be dated any earlier than revised/new FS is approved. the FS will include a emphasis of matter referring to the notes in FS that explains why the revision took place

if that subsqt event is not pervasive on FS then the revised adt report can be dated on the original date

if mgt not taking necessary steps, the adtr needs to inform those in charge including adt committee that strict actions will be taken by adtr