When the audited financial statements are included in other documents subsequent to the issuance of the financial statements, the auditor may have additional responsibilities relating to subsequent events that the auditor may need to consider, such as legal or regulatory requirements involving the offering of securities to the public in jurisdictions in which the securities are being offered.
What are subsubsequent events in audit?
subsequent events. In this ISA, the term “subsequent events” is used to refer to both events occurring between the date of the financial statements and the date of the auditor’s report, and facts discovered after the date of the auditor’s report. 2. The auditor should consider the effect of subsequent events on the financial
Do auditors have a responsibility to perform procedures to identify subsequent events?
(1) Auditors do not have a responsibility to perform procedures to identify subsequent events after the date of the auditor’s report
Who is responsible for obtaining sufficient audit evidence for adjusting events?
However, as per auditing standards, auditors are responsible for only obtaining sufficient appropriate audit evidence that all the events that are adjusting events and have occurred between the date of financial statements and the date of auditor’s report have been identified.
What is the auditor’s responsibility between reporting date and expected date?
The second part of this article will now consider the auditor’s responsibility in relation to ensuring all events occurring between the reporting date and the (expected) date of the auditor’s report have been adequately taken into consideration, and sufficient appropriate audit evidence has been gathered to achieve the objective.
What procedures do auditors perform to identify subsequent events?
However the following procedures are typical of a subsequent events review: Enquiring into management's procedures/systems for the identification of subsequent events; Inspection of minutes of members' and directors' meetings; Reviewing accounting records including budgets, forecasts and interim information.
What is an auditor's responsibility with regard to subsequently discovered facts?
Auditors have no responsibility for subsequently discovered facts after the report release date unless the client determines that routine auditing procedures should have uncovered the facts during the period of the financial statement.
What are the types of subsequent events the auditor should identify?
There are two types of subsequent events:Adjusting events. An event that provides additional information about pre-existing conditions that existed on the balance sheet date.Non-adjusting events. A subsequent event that provides new information about a condition that did not exist on the balance sheet date.
What are the responsibilities of a auditors?
What are the Main Functions of an Auditor?Provide recommendations to improve weak internal controls.Investigate instances of possible fraud (even those considered immaterial)Perform reconciliations of financial and operating information.Monitor compliance with industry standards, laws, and guidelines.More items...•
What is a subsequent event in accounting?
Per the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 855-10-20, Subsequent Events are defined as events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued.
What is the auditor's responsibility on the events after the date of the report?
02 The auditor has no responsibility to make any inquiry or carry out any auditing procedures for the period after the date of his report. However, with respect to filings under the Securities Act of 1933, reference should be made to paragraphs .
What should be included in subsequent events?
A subsequent event is an event that occurs after a reporting period, but before the financial statements for that period have been issued or are available to be issued. Depending on the situation, such events may or may not require disclosure in an organization's financial statements.
What is the importance of subsequent events?
Subsequent events can invalidate information used in the summary. The adjustment of records for subsequent events can improve a company's financial picture, an important consideration for a business that hopes to attract lenders or investors.
What are Type 1 and Type 2 subsequent events?
Type I subsequent events provide evidence about conditions that existed on or before the balance sheet date. These events are recognized in the financial statements. Type II subsequent events provide evidence about conditions that did not exist on or before the balance sheet date.
What is an auditor's responsibility for internal control?
The Duties of an Internal Auditor Objectively assess a company's IT and/or business processes. Assess the company's risks and the efficacy of its risk management efforts. Ensure that the organization is complying with relevant laws and statutes. Evaluate internal control and make recommendations on how to improve.
Which of the following is not one of the auditor's responsibility?
The auditor has no responsibility to plan and perform the audit to obtain reasonable assurance that misstatements, whether caused by errors or fraud, that are not material to the financial statements are detected.
Which type of subsequent event requires consideration by management and evaluation by the auditor?
Which type of subsequent event requires consideration by management and evaluation by the auditor? Subsequent events that have a direct effect on the financial statements and require adjustment. Subsequent events that do not have a direct effect on the financial statements but for which disclosure may be required.
What is the essential meaning of the auditor being independent in fact?
Auditor's independence creates unbiased audit reports and upholds professional skepticism in the industry. If an auditor's independence is impaired, the business receding the audit has not fulfilled their obligation of receiving an audit from an independent auditor.
Which of the following information discovered during an audit most likely would raise a question concerning possible illegal acts?
B. Large checks payable to cash would be most likely to raise questions regarding possible illegal acts. Valid company disbursements are typically made by check and controlled through accounts payable. Cash payments are unusual and difficult to control.
Which of the following material events occurring subsequent to the balance sheet date would require an adjustment to the financial statements before they are issued?
Which of the following material events occurring subsequent to the balance sheet date would require an adjustment to the financial statements before they could be issued? Settlement of litigation, in excess of the previously recorded liability.
When does an auditor need to amend financial statements?
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.
When are financial statements finalised?
In almost all circumstances, financial statements will not be finalised until a period of time has elapsed between the year-end date and the date on which the financial statements are (expected to be) issued.
What is IAS 10 after the reporting period?
IAS 10, Events After the Reporting Period stipulates the accounting and disclosure requirements concerning transactions and events that occur between the reporting date and the (expected) date of approval of the financial statements. Among other things, IAS 10 determines when an event that occurs after the reporting date will result in the financial statements being adjusted, or where such events merely require disclosure within the financial statements. Such events are referred to in IAS 10 as ‘adjusting’ or ‘non-adjusting’ events.
What happens if the conditions did exist at the year end?
If the conditions did exist at the year-end, the event will become an adjusting event. If the event occurred after the year-end, it will become a non-adjusting event and may simply require disclosure within the financial statements. 1. Fraud.
What happened at the end of 2010?
2. Legal proceedings. At the year-end, the company had made disclosure of a contingent liability. However, subsequent to the year-end (29 October 2010), the court found the company liable for breach of contract. The legal proceedings were issued on 20 September 2010 (some 10 days before the year-end).
What is an adjustment event?
Adjusting event. An event after the reporting period that provides further evidence of conditions that existed at the end of the reporting period, including an event that indicates that the going concern assumption in relation to the whole or part of the enterprise is not. appropriate.
Can an auditor express an unmodified opinion?
Provided this amount remains immaterial at the completion stage, both individually and when aggregated with other misstatements, the auditor can still express an unmodified opinion.
MC Question 7 - September 2016
You are an audit manager at Blenkin & Co and are approaching the end of the audit of Sampson Co, which is a large listed retailer. The draft financial statements currently show a profit before tax of $6·5m and revenue of $66m for the financial year ended 30 June 20X6. You have been informed that the finance director left Sampson Co on 31 May 20X6.
MC Question 12 - September 2016 Specimen
Cannavaro.com is a website design company whose year end was 31 December 20X4. The audit is almost complete and the financial statements are due to be signed shortly. Profit before tax for the year is $3·8 million and revenue is $11·2 million.
Question 3i ii - June 2016 Sample
Grains 4U Co (Grains) manufactures breakfast cereals and has three factories, four warehouses and three distribution depots spread across North America. The audit for the year ended 31 December 2015 is almost complete and the financial statements and audit report are due to be signed shortly. Profit before taxation is $7·9 million.
Question 4i - June 2016 Sample
Kyanite Pizzas Co (Kyanite) operates a large chain of fast food restaurants. You are an audit supervisor of Jasper & Co and are currently preparing the audit programmes for the audit of Kyanite’s financial statements for the year ended 31 March 2016.
MC Question 9 - June 2015
Which of the following statements, relating to the auditor’s responsibilities regarding subsequent events, if any, is/are correct?
Question 4b - December 2014
Bullfinch.com is a website design company whose year end was 31 October 2014. The audit is almost complete and the financial statements are due to be signed shortly. Revenue for the year is $11·2 million and profit before tax is $3·8 million.
MC Question 11 - December 2014 Specimen
The audit of Giggs Co’s financial statements for the year ended 31 October 2014 has been completed; the audit report and the financial statements have been signed but not yet issued.
What is an independent auditor's report?
.01 An independent auditor's report ordinarily is issued in connection with historical financial statements that purport to present financial position at a stated date and results of operations and cash flows for a period ended on that date. However, events or transactions sometimes occur subsequent to the balance-sheet date, but prior to the issuance of the financial statements, that have a material effect on the financial statements and therefore require adjustment or disclosure in the statements. These occurrences hereinafter are referred to as "subsequent events."
When does litigation settle?
Settlement of litigation when the event giving rise to the claim took place subsequent to the balance-sheet date.
What is the period after the balance sheet date?
This period is known as the "subsequent period" and is considered to extend to the date of the auditor's report. Its duration will depend upon the practical requirements of each audit and may vary from a relatively short period to one of several months. Also, all auditing procedures are not carried out at the same time and some phases of an audit will be performed during the subsequent period, whereas other phases will be substantially completed on or before the balance-sheet date. As an audit approaches completion, the auditor will be concentrating on the unresolved auditing and reporting matters and he is not expected to be conducting a continuing review of those matters to which he has previously applied auditing procedures and reached satisfaction.
Do financial statements require disclosure?
However, events or transactions sometimes occur subsequent to the balance-sheet date, but prior to the issuance of the financial statements, that have a material effect on the financial statements and therefore require adjustment or disclosure in the statements.
What is the responsibility of auditors?
However, as per auditing standards, auditors are responsible for only obtaining sufficient appropriate audit evidence that all the events that are adjusting events and have occurred between the date of financial statements and the date of auditor’s report have been identified.
What are subsequent events according to accounting?
Subsequent events according to accounting are the events that occur between the END OF REPORTING PERIOD i.e. the date of financial statements and the DATE financial statements are AUTHORISED FOR ISSUE. But hold on, story isn’t finished here, events can be either adjusting i.e. require accounting treatments or non-adjusting i.e. that do not require accounting treatments.
What is a subsequent event?
As per accounting standards the subsequent event relates to the period between the end of the reporting period until the financial statements are approved. And that’s all! As per auditing standards, subsequent events encompass the time period that relates to the period after auditor’s report that includes the period not only up to date financial ...
What is non-adjusting events after the reporting period?
those that are indicative of conditions that arose after the reporting period (non-adjusting events after the reporting period). Events occurring 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 is the difference between an auditor and an accountant?
From this we can understand that accountants’ responsibility usually spans over a larger scale of time whereas, auditor’s responsibility usually ends well before financial statements are issued.
Who is responsible for preparing financial statements?
Responsibility. As per accounting standards the accountants (those who are responsible for preparing financial statements) are responsible to identify the events that require adjustment in the financial statements and their responsibility extends to the date financial statements are approved.
Is there a term for events after reporting period?
First things first there is no such term as Subsequent events defined under International Accounting Standards, however, many use this term for such events which in accounting standards has been described as Events after the reporting period.
What is the purpose of audit procedures?
The auditor should perform audit 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. These procedures are in addition to procedures which may be applied to specific transactions occurring after the date of the financial statements to obtain audit evidence as to account balances as at the date of the financial statements, for example, the testing of inventory cutoff and payments to creditors. The auditor is not, however, expected to conduct a continuing review of all matters to which previously applied audit procedures have provided satisfactory conclusions.
Does the auditor have to perform an audit?
9. The auditor does not have any responsibility to perform audit procedures or make any inquiry regarding the financial statements after the date of the auditor’s report. During the period from the date of the auditor’s report to the
What is an auditor considering?
An auditor is considering whether the omission of a substantive procedure considered necessary at the time of an audit may impair the auditor's present ability to support the previously expressed opinion. The auditor need not apply the omitted procedure if the:
Why was the Auditor's previously expressed opinion qualified?
c. Auditor's previously expressed opinion was qualified because of a departure from GAAP.
What is subsidiary sales?
a. A subsidiary is sold that accounts for 25% of the entity's consolidated net income.
Financial Reporting Considerations
- In almost all circumstances, financial statements will not be finalised until a period of time has elapsed between the year-end date and the date on which the financial statements are (expected to be) issued. Therefore, regard has to be given to events that occur between the reporting date and the date on which the financial statements are (expected to be) authorised for issue. IAS 10…
Auditor’S Responsibilities
- So far we have considered the financial reporting aspects relating to events after the reporting period. The second part of this article will now consider the auditor’s responsibility in relation to ensuring all events occurring between the reporting date and the (expected) date of the auditor’s report have been adequately taken into consideration, and sufficient appropriate audit evidence …
Audit Procedures
- In Example 1 above, we identified that fraud and the legal proceedings were adjustingevents that gave rise to an adjustment within the financial statements as at 30 September 2010. We also identified that the loss of the customer was also an adjusting event, but as the value of the receivable was considered immaterial, no adjustment was made to the financial statements. Let …
Conclusion
- Subsequent events are a key examinable area in auditing papers and it is crucial that students have an understanding of the types of audit evidence that the auditor should obtain to confirm that the accounting and disclosure requirements (particularly in IAS 10) have been applied correctly within the financial statements. Candidates who simply writ...