AUD 1 - Subsequent Events

Question 1

What is type 1 of subsequent events?

Answer 1

There is MONEY recorded

• Existed as of the balance sheet date - but we are NOW becoming aware of it
• Event that is RECOGNIZED after the balance sheet date, AND now requires an adjustment (debit and credit) to the financial statement as of the balance sheet date

Question 2

What is type 2 of subsequent events?

Answer 2

There is a FOOTNOTE

• Did not exist as of the balance sheet date - but we need to tell people about about it NOW
• Event that is NONRECOGNIZED and do not require an adjustment (NO debit or credit)

Question 3

What are the auditor’s responsibilities of subsequent events before issuing the report?

Answer 3

• Should review post balance sheet transactions for proper cutoff
• Obtain a representation letter from management stating events will be disclosed to you
• Should inquire with company about subsequent events
• Review the minutes
• Examine most recent financial statements

Question 4

Who is responsible for subsequent events up to the date financial statements are issued?

Answer 4

Management is responsible for subsequent events up to the date of financial statement issuing

Question 5

Are subsequent events recognized during a revision of financial statements?

Answer 5

Subsequent events are NOT recognized during a revision of financial statements.

Question 6

What happens if auditor missed something?

Answer 6

• General CPA is not liable after the original date of the auditor’s report
• Advise client to report disclosures, revised financial statements, and notify public that the financial statements should NOT be relied upon.