subsequent events and related issues Flashcards
Subsequent events
subsequent events-events occurring between the date of the financial statements and the date of the audit report.
subsequently discovered facts
facts that become known to the auditor after the date of the auditors report, that had they been known to the auditor at that date may have caused the auditor to revise the audit report.
subsequent events requiring adjustment
where such an event provides new or better information about circumstances in existence as of the balance sheet date
exA lawsuit that could only be estimated at the balance sheet date was settled for a fixed amount prior to the issuance of the audit report; with the benefit of this new information, there is no need to estimate the financial statement consequences, since the actual consequence is now known and can be used to adjust the income statement and balance sheet.
subsequent events requiring disclosure only
where disclosure of a material event or transaction is necessary so the financials will not be misleading, even though the subsequent event issue is unrelated to circumstances existing at the balance sheet date.
ex
After the balance sheet date, a tornado wiped out the company’s facilities and the company had no casualty insurance; disclosure would be required to prevent financial statement readers from being misled about the entity’s circumstances, but adjustment would not be required since the financial statement presentation was appropriate at year-end.
audit procedures for subsequent events
inquire of management
review meeting minutes of those charged with governance
lawyer letter may be relevant
scan journal and letters subsequent to year end for any unusual items
subsequent facts that became known to the auditor after the report release date
discuss with management and decide wether f/s need revision
if management revises the statements then the auditor should do appropriate audit procedures on the revision
if management does not revise the f/s then auditor may have to change opinion
subsequent facts that became known to the auditor after the report release date
discuss with management and decide if needs revision
if management revises f/s then the auditor needs to do audit procedures on the revision.
assess wether managements action are timely and appropriate so users are informed.
if the opinion differs on the revised f/s then on the prior unrevised f/s then you will need to add a emphasis of matter or other report that says why.
if management does not revise f/s and the auditor things it’s necessary then auditor should see if they have been made available to third parties.
if not released to third parties then notify management and revise the f/s.
if have made available auditor needs to determine if management has taken necessary and timely steps to notify users.
if management does not notify users then auditor will notify management that they will try to prevent users from relying on the f/s.
dating the audit report
the audit report should not be dated earlier than the date on which the auditor has obtained sufficient appropriate audit evidence to support the opinion.
if the financial statements are are adjusted without any accompanying disclosure the report should be dated when ever the auditor _________
gets sufficient appropriate audit evidence
if financial statements are adjusted along with additional footnote disclosure or disclosure is added without adjustment the audit report may be ______or dated as of the latest date.
dual dated
