ISA 560 - Subsequent Events

Question 1

ISA 560: Subsequent Events:

Answer 1

Subsequent meaning: Something occurring afterwards
> NB: Events happening after the Financial Year End Date.

Management is going to prepare FS and Auditors are going to check them.
> Auditor- recheck the FS.
> This is given by (AccountingStandard) AS 4: Events occurring after the Balance Sheet date.

Responsibility on the Auditor to: > Identify and respond to those Subsequent Events
> That has impact on the Financial Statements of the year in which Audit is conducted.

3 Important things that must be understood are:
1. Financial Year End Date, ie. 31 March 2022.
2. Audit Report Date.
3. Date when Financial Statements are issued to third party.

3 Events Categories according to AS4:
Category 1: Between the Date of Financial Year End and the Audit Report Date.
> Auditor to perform Procedure to ensure all Subsequent Events are identified.
* Discuss with Management
* Inquire if they are aware of Subsequent Events if any.
* Check the minutes of the meeting.
* Check the Interim Financial Statement.
> Auditor to check the effect of Subsequent Events is reflected in the books appropriately.
> Obtain written representation from management about the Disclosure and adjustment of Subsequent Events.

Category 2: Between Audit Report Date and Date when Financial Statements are issued to 3rd Parties.
> Auditor would change his opinion if the information was received earlier.
a) Discuss with the Management.
b) Check if ammendment is required.
c) See how the ammendment is to be done.
* Management ammends the Financial Statements after issue of Audit Report.
* Auditor to perform extended Audit Procedure on amended part and if appropriate disclosure is made.
> An Emphasis Matter paragraph/ Other Matter paragraph given in new Audit Report stating that the extra Procedure adopted are only for ammendments.
> Insert a New Date in the Audit Report Issued. Include the description of Procedure done and conclusion drawn. The new date is restricted only with respect to ammendment.

On the contrary,
If management does not agree to ammend the Financial Statements:
> Auditor should modify the Audit Report if the Report is still with Auditor.
> Request the management to not to publish the Audit Report issued.
> Take a legal action against the client and take precautionary action by issue of public notice if management issue the Audit Report even if Auditor Request to not to publish Audit Report.

Category 3: Date after Financial Statements are issued to Third Parties.
> Auditor comes across Subsequent Events after Financial Reports have been issued.
* Auditor must check, If it impacts the Report:
> Discuss/ Inquire and check the management response.
> Perform additional procedure
* Issue fresh Audit Report by including Emphasis Matter paragraph/ Other Matter paragraph.
* Perform additional procedure to ensure management has intimidated Third Party.

Examples of Subsequent Events:
> Taking up new contract,
> New law case filled against the client
> Plans of Merger / Acquisition
> Discontinue a particular operation
> Sale of one of the undertaking
> Loss due to natural calamity
> Probability of outflow due to Contingent event.

• If Condition is existing on Balance Sheet Date:
  > Adjustment is required in the Financial Statement.
• If Condition is not existing on Balance Sheet Date:
  > Disclosure in the Financial Statements is required.

Auditor should ensure that Management has identified the Subsequent Events and have Dusclosed or adjusted as required.