SUBSEQUENT EVENTS Flashcards
what are subsequent events?
Subsequent events occur between the date of the financial statements and the date of the auditor’s report, and facts that become known to the auditor after the date of the auditor’s report.
what are adjusting and non adjusting events, with examples?
ADJUSTING EVENTS:
these provide evidence that conditions existed at the reporting date. they give new info about items included in FS.
examples
-bad debts
-settlement of legal case
-impairment of assets
-discovery of fraud/errors revealing that FS are incorrect
Going concern is always an adjusting event
NON ADJUSTING EVENTS:
These are related to conditions that arose after the reporting date, if material, disclosure is required.
examples:
-inventory or NCA loss cuz of fire or floods
-Issue of new share or loan capital
–major changes in composition of group (mergers, acquisitions etc)
-strikes, govt action like nationalisation
-purchases, sales of NCA
what are the responsibilites of auditor regarding events before date of report?
-perform procedures to identify any events that need to be adjusted or disclosed in FS
-ask management to adjust if they haven’t already
-if identified events are not adjusted/disclosed, then consider the impact on auditor’s report and whether modifying the opinion may be necessary
what are audit procedures regarding subsequent events?
-enquire management if they are aware of any adjusting or non adjusting events not included in FS?
-enquiring management about their procedures/systems for identification of events after reporting period
-read minutes of members and directors meetings
-review accounting records like budgets, forecasts, cash flows, etc
-obtain a written rep from mgmnt confirming they have informed auditor of all sub events and appropriately accounted for them in FS
-inspect correspondence with legal advisors
-review progress of known risk areas and contingencies
-inspect after date receipts from recievables
-inspect cash book for yr end payments/ recepts that were not accred for at yr end
-inspect sales price of inventory after yr end
-consider relevant info like outside sources, public info, competitors, suppliers and customers.
what are the responsibilities of the auditor between date of report and date the FS are issued?
-no obligation to perfrom procedures, but if info comes up, action must be taken
-action is normally in te form of asking client to amend FS , auditing amendments and reissuing report
-if amendments are not made by management and report has not been issued yet, auditor can modify opinion
-if audit report has been issued, notify mgmgnt and TCWG not to issue FS before making amendments
-if FS are issued despite this request, take action to prevent reliance on the report
-legal advice shud be taken as the course of action to prevent reliance on auditor’s report depends on auditors right and obligations.
what are auditors reponsibilities after FS are issued?
-no obligtion to perform procedures however, if they discover a fact that would cause them to amend report, they shud take action
-discuss matter with mgmnt and consider if FS need amendment
-perform audit procedures on amendments to make sure correct
-review management steps to ensure old FS users are informed
-issue a new auditor report including a EMPHASIS of MATTER para to draw attention to the fact that FS n report have been reissued
-if management refues to amend, auditor shud take action to prevent reliance on auditor’s report
what is the purpose of a subsequent events review?
to identify any events, favorable and unfavorable, that occur between the date of the financial statements and the date of the auditor’s report,
so that appropriate disclosures and adjustments can be made
