ISA 560 - SUBSEQUENT EVENTS

Question 1

ISA 560

ISA 560 - SUBSEQUENT EVENTS

Answer 1

In ISA 560, the term “subsequent events” is used to refer to both:

• EVENTS OCCURRING BETWEEN the date of the F/S & the date of the auditor’s report
• FACTS that become known to the auditor AFTER the date of the auditor’s report

Question 2

ISA 560

Auditors RESPONSIBILITIES regarding subsequent events

Answer 2

ZONE 1- Before AR signed (post-balance sheet period)
The auditor has an ACTIVE DUTY to perform audit PROCEDURES designed to identify, & to obtain sufficient appropriate evidence of all EVENTS up to the date of the auditor’s report that may require adjustment, or disclosure, in the F/S.

PALMS - Searching for post-BS evets. These procedures should be performed AS CLOSE AS POSSIBLE to the date of the auditor’s report.

To obtain written representations on the date that the report is signed that management has informed the auditors of all post balance sheet events (adjusting & non adjusting)

All these take place on the same day:
1/ Letter of representation received
2/ Directors approve FS
3/ Auditor’s report signed

ZONE 2 - Before FS issued
The auditor DOES NOT have any responsibility to perform audit procedures or make any enquiry regarding the financial statements or subsequent events after the date of the auditor’s report. In this period, it is the responsibility of management to inform the auditor of FACTS which may affect the FS.

IF a matter has been brought to the attention of the auditor, to DISCUSS matter with management & ENQUIRE whether they intend to treat the matter as adjusting or non-adjusting & whether they intend to amend the F/S If F/S amended, the audit the amendment & issue NEW audit report (with the same date as the original report).

ZONE 3 - After FS issued

1/ The auditor DOES NOT have any responsibility to perform audit procedures or make any enquiry regarding the financial statements or subsequent events after the date of the auditor’s report.
2/ In this period, it is the responsibility of management to inform the auditor of FACTS which may affect the FS.

3/ IF a matter has been brought to the attention of the auditor, to DISCUSS matter with management & ENQUIRE whether they intend to treat the matter as adjusting or non-adjusting & whether they intend to amend the F/S
4/ If F/S amended, the audit the amendment & issue NEW audit report (with the same date as the original report).

EA to draw attention to NOTE on significant subsequent event in EOM (Emphasis of Matter) paragraph

Have directors included a NOTE in F/S explaining reasons for revision?
YES - EA draw attention to NOTE in EOM paragraph (Emphasis of Matter)
NO - EA to explain revision in OM paragraph (Other Matter)

Question 3

ISA 560

Subsequent Events - audit procedures

In Post-Balance Sheet period

Answer 3

1/ IDENTIFY events (SUBSEQUENT EVENTS CHECKLIST) - PALMS

▪ REVIEW P - Procedures established by management
for ensuring that subsequent events are identified

▪ REVIEW the latest A - Available interim F/S as well as any budgets & cash flow forecasts in order to identify subsequent events

▪ OBTAIN written response from the company’s L - Lawyers concerning litigation and claims in respect of likelihood & outcome.

▪ READ M - Minutes of meetings of shareholders, the board of directors & audit committees to see if any events have been discussed.

▪ ENQUIRE from management whether any S - Subsequent events have occurred

▪ CONSIDER whether any events have occurred that could call into question the validity of the going concern assumption.

2/ AUDIT the events - COCA-CP
Where a material subsequent event is discovered, the auditor should consider whether management have properly accounted for and disclosed the event in the financial statements in accordance with IAS 10 Events After the Reporting Period. …

OCCURRENCE / CUT OFF / CLASSIFICATION - Confirm occurrence of the event & date by … Make assessment as to whether the event is adjusting or non-adjusting

ACCURACY - Obtain evidence of the financial impact of the event ($$$)

COMPLETENESS - Consider whether the event has effect on other financialstatement items & whether there are going concern issues

PRESENTATION - related DISCLOSURES are relevant and understandable

3/ Implications for the auditor’s report

IF the financial impact of the event can be assessed & event accounted for correctly in accordance with IAS 10, issue an unmodified opinion.

IF accounting treatment is incorrect, & the amount is material, issue an ‘Except For’ opinion seeing that the financial statements are materially misstated due to non-compliance with IAS 10