ISA 560, Subsequent Events outlines the auditor’s responsibility in relation to subsequent events. For the purposes of ISA 560, subsequent events are those events that occur between the reporting date and the date of approval of the financial statements and the signing of the auditor’s report. Show
The overall objective of ISA 560 is to ensure the auditor performs audit procedures that are designed to obtain sufficient appropriate audit evidence to give reasonable assurance that all events up to the (expected) date of the auditor’s report have been identified, properly accounted for/r disclosed in the financial statements. ISA 560 also covers events that are discovered by the auditor after the date of the auditor’s report but before the financial statements are issued.
Subsequent EventsManagements' responsibilitiesManagement are responsible for preparing the financial statements in accordance with the relevant financial reporting framework. IAS 10 Events After the Reporting Period requires management to consider the impact of events that occur after the year-end on the financial statements. It categorises those events as either:
The auditors' responsibilitiesISA 560 Subsequent Events details the responsibilities of the auditors with respect to subsequent events and the procedures they can use. It identifies two periods of relevance: Up to the date of the audit reportUntil this point the auditor must perform procedures to identify events that need to be either adjusted or disclosed in the financial statements. Between the date of the audit report and publishing the accountsDuring this period the auditor need not perform procedures but, if they identify any adjustments or disclosures that need to be made in the financial statements they must take appropriate action. This will normally be in the form of requesting that the directors amend the financial statements and then reissuing the audit report. If the directors refuse then the auditor has the right to communicate the known misstatements to the shareholders at the annual general meeting. The auditor may also consider resigning and issuing a statement of circumstance. ProceduresThe nature of procedures performed in a subsequent events review depends on many variables, such as the nature of transactions and events and the availability of data and reports. However the following procedures are typical of a subsequent events review:
If, after the financial statements have been issued, management amends the financial statements, the auditor shall:
What are the auditor's responsibility for subsequent events?The auditor should perform procedures designed to obtain sufficient appropriate audit evidence that all events up to the date of the auditor's report that may require adjustment of, or disclosure in, the financial statements have been identified.
What step should be performed by the auditor relating to the subsequent event?The auditor is required to discuss with management how they intend to deal with events that will require the financial statements to be amended after the auditors have signed their report, but before the financial statements are issued.
Which of the following is considered a recognized subsequent event?A settlement of litigation resulting in a loss related to events that took place prior to the balance sheet date is typically considered a recognized subsequent event.
Which of the following procedures should an auditor most likely perform regarding subsequent events?Answer and Explanation: Option (c) is the correct answer. An auditor most likely inquires about the entity's legal counsel concerning litigation, claims, and assessments arising after year-end because it may arise after year-end but before issuance of financial statements for the period.
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