SA 560 – Subsequent Events

Question 1

M/s Krishna Associates, Chartered Accountants, while conducting the audit of Love Kush Ltd want
to conduct an inquiry of management and those charged with governance as to whether any
subsequent events have occurred which might affect the financial statements. Guide M/s Krishna
Associates with the matters where specific inquiries may be conducted to evaluate subsequent
events.

Answer 1

Specific Inquiries to Evaluate Subsequent Events: As per SA 560, “Subsequent Events”, in
inquiring of management and, where appropriate, those charged with governance, as to whether
any subsequent events have occurred that might affect the financial statements, the auditor may
inquire as to the current status of items that were accounted for on the basis of preliminary or
inconclusive data and may make specific inquiries about the following matters:
(i) Whether new commitments, borrowings or guarantees have been entered into.
(ii) Whether sales or acquisitions of assets have occurred or are planned.
(iii) Whether there have been increases in capital or issuance of debt instruments, such as the
issue of new shares or debentures, or an agreement to merge or liquidate has been made or
is planned.
(iv) Whether any assets have been appropriated by government or destroyed, for example, by fire
or flood.
(v) Whether there have been any developments regarding contingencies.
(vi) Whether any unusual accounting adjustments have been made or are contemplated.
(vii) Whether any events have occurred or are likely to occur that will bring into question the
appropriateness of accounting policies used in the financial statements, as would be the case,
for example, if such events call into question the validity of the going concern assumption.
(viii) Whether any events have occurred that are relevant to the measurement of estimates or
provisions made in the financial statements.
(ix) Whether any events have occurred that are relevant to the recoverability of assets.