Chapter 1 Section 5: Events Occurring After Year-End

Question 1

What are the two types of subsequent events?

Answer 1

Recognized (Type I) - Conditions existing on or before the balance sheet date
Nonrecognized (Type II) - Conditions existing after the balance sheet date

Question 2

How are recognized events handled?

Answer 2

Adjust the financial statements

Question 3

How are nonrecognized events handled?

Answer 3

Footnote

Question 4

Up until what date is the CPA responsible for subsequent events?

Answer 4

Up to the date of the audit report

They have an active responsibility to investigate certain subsequent events

Question 5

What are the procedures for subsequent events?

PRIME

Answer 5

Post balance sheet transactions
Representation letter
Inquiry
Minutes of meetings
Examine latest interim financials

Question 6

What is the auditor’s responsibility after the original date of the auditor’s report?

Answer 6

They have no active responsibility, but if they become aware of information before the report is released, they should consider whether it needs to be addressed

Question 7

What date should be used if adjustments or disclosures are made after the original date of the report?

Answer 7

Dual dating to extend the responsibility only for the particular subsequent event
You can also used a later date, but that extends all responsibility

Question 8

What if you find facts after the report release date?

Answer 8

Possibilities include

1. Advise the client to issue revised financials
2. Advise the client to make the necessary disclosures and revisions to imminent financials
3. If the effect can’t be determined, provide notification that the financials and your report shouldn’t be relied on

Question 9

What if the client refuses to follow your advice after you find information you missed?

Answer 9

Notify each member of the board
Disassociate
Alert agencies and
Relying parties

Question 10

What if you find out you skipped a procedure after the audit report release date?

Answer 10

If what you did do was enough, don’t worry about it

If what you did do was not enough, start working on it now