AUD 1.9 - Subsequuent Events Flashcards
This is an event that occurs after the balance sheet date but before the financial statements are issued or available to be issued:
Subsequent event
What are the two categories of subsequent events?
Recognized subsequent events
Unrecognized subsequent events
This type of subsequent event provides additional information about conditions that existed at the balance sheet date:
Recognized subsequent events
This type of subsequent event provides information about conditions that occurred after the balance sheet date and did not exist at the balance sheet date:
Non recognized subsequent events
How does one document the following in the financials:
Recognized subsequent events
Non recognized subsequent events
Recognized: money is recorded (looking backwards)
Non recognized: footnote is recorded (looking forward)
How long must public companies and private companies evaluate subsequent events for?
Public: through the date financials are issued
Private: through the date the financials are available to be issued
When are financial statements considered to be issued?
When they have been widely distributed to financial statement users in a form and format that complies with GAAP
When are financial statements considered to be available to be issued?
When they are in a form and format hat complies with GAAP and all approvals for issuance have been obtained
When an entity reissues its financial statements, the entity should do what in regards to subsequent events?
NOT recognize events that occurred between the date the financials were originally issued and the date of re-issuance UNLESS an adjustment is required by GAAP or other regulatory requirements.
During the subsequent period, the auditor should perform the following 5 procedures to ensure management has identified all subsequent events:
- Examine post balance sheet transactions for proper cutoff
- Obtain a representation letter from management regarding if any subsequent events occurred
- Inquire of client’s legal counsel
- Review the minutes of meetings during subsequent period
- Examine the latest interim financial statements and compare to those under audit
What should an auditor do if information that materially affects the report and other people’s reliance on it is discovered after issuance?
The auditor should advise the client to immediately disclose the new information and its impact on the financial statements to persons currently relying on the financials by doing the following:
1. Issue revised financials
2. Make disclosures
3. Provide notification that the financials and report should not be relied upon
If adjustments or disclosures are made after the original date of the auditors report, the auditor may do one what two things?
- Dual date the report to extend responsibility only for the particular subsequent event
OR - Date the report for a later date but this would extend the auditors responsibilities for all subsequent events leading up to the later date
If the client refuses to make appropriate adjustment or disclosures due to information discovered following issuance, the auditor should do what?
Notify each member of the board of directors AND:
1. Notify the client that the auditors report must no longer be associated with the financials
2. Notify any regulatory agencies its jurisdiction over the client that the auditor should no longer be relied upon
3. Notify people know to be relying on the financials that the auditors report should no longer be relied upon
(DAR them = Disassociate, Alert agencies, Relying parties)
If the auditor believes the financials need to be revised to reflect a subsequent event and management does not make the revision, what opinion should the auditor express?
A qualified or adverse opinion
