M5 Subsequent events and final Materiality

Question 1

What legislation deals the evaluation of misstatements?

Answer 1

ISA 450

Question 2

What legislation deals subsequent events?

Answer 2

• ISA 560
• IAS 10

Question 3

What is Final materiality?

Answer 3

the materiality that we set in order to see if the misstatements at the end of the year will affect out audit opinion

Question 4

What are the steps to evaluate the remaining misstatements against final materiality?

Answer 4

1. Assess the materiality of each item individually in a Qualitative sense and Quantitative sense
2. If individually they are not material then add them together to see if collectively they reach materiality

Question 5

What misstatements should be considered at the end of the year?

Answer 5

All misstatements from previous years and the current year that have not been corrected

Question 6

What is a subequent event and why is it relevant in the context of auditing?

Answer 6

• A subsequent event is an event that reveals more information about the financials of the business (before release of financial statements), this event can either be an adjusting event or a non-adjusting event
• an adjusting event is when the information sheds more light on the information the position of the business before reporting date or during reporting period and therefore should be accounted for within the statements
• a non adjusting event is when the information is for the situation after the reporting time, therefore non adjusting to financial statements
• there are 2 exceptions you should remember from accounting (IAS 10)
• in Auditing if these events occur, we need to test how they were accounted for and that its going to affect our opinion.

Question 7

Until when should an Auditor look out for subsequent events? why?

Answer 7

Until a while after the audit report was released because the auditor might have issued a differing opinion had he known that information