Subsequent Events

CAS 560

Subsequent Events

CAS 560

Events Occurring between the Date of the Financial Statements and the Date of the Auditor's Report
  • Perform audit procedures to obtain sufficient appropriate audit evidence that all events occurring between the date of the F/S and the date of the auditor’s report that require adjustment or disclosure in the F/S have been identified
    • i.e. Review or testing of accounting records or transactions occurring between the date of the F/S and the date of the auditor’s report
  • Audit procedures should include:
    1. Obtaining an understanding of any procedures management has established to ensure that subsequent events are identified
    2. Inquiring of management and those charged with governance as to whether any subsequent events have occurred which might affect the F/S
    3. Reading minutes of the meetings of owners, management and those charged with governance that have been held after the date of the F/S and inquiring about matters discussed at any such meetings for which minutes are not yet available
  • If the auditor identifies events that require adjustment to the F/S, determine whether each such event is appropriately reflected in those F/S per GAAP
  • Request management and those charged with governance to provide a written representation that all events occurring subsequent to the date of the F/S that require adjustment/disclosure in the F/S have been adjusted or disclosed
Facts Which Become Known to the Auditor after the Date of the Auditor's Report but before the Date the Financial Statements Are Issued
  • Auditor has no obligation to perform any audit procedures regarding the F/S after the date of the auditor’s report
  • However, if, after the date of the auditor’s report but before the date the F/S are issued, a fact becomes known to the auditor that, had it been known to the auditor at the date of the auditor’s report, may have caused the auditor to amend the auditor’s report:
    1. Discuss the matter with management and those charged with governance
    2. Determine whether the F/S need amendment
    3. If the F/S need amendment, inquire how mgm’t intends to address the matter in the F/S
  • If management amends the financial statements:
    1. Carry out the audit procedures necessary on the amendment;
    2. Extend the audit procedures to the date of the new auditor’s report; and
    3. Provide a new auditor’s report on the amended F/S. The new auditor’s report should not be dated earlier than the date of approval of the amended F/S
      • If GAAP allows management to restrict the amendment of the F/S to the effects of the subsequent event, the auditor is permitted to restrict the procedures to the amendment. In such cases, the auditor should either:
        1. Amend the auditor’s report to include an additional date (double date the audit report) restricted to that amendment that indicates that the auditor’s procedures on subsequent events are restricted solely to the amendment of the F/S described in the relevant note to the F/S; or
          • Example: “(Date of auditor’s report), except as to Note Y, which is as of (date of completion of audit procedures restricted to amendment described in Note Y).”
        2. Provide a new or amended auditor’s report that includes a statement in an Emphasis of Matter paragraph or Other Matter paragraph that explains that the auditor’s procedures on subsequent events are restricted solely to the amendment of the F/S as described in the relevant note to the F/S
  • If management does not amend the F/S in circumstances where the auditor believes they need to be amended:
    1. If the auditor’s report has not yet been provided to the entity, modify the opinion; or
    2. If the auditor’s report has already been provided to the entity, notify management and those charged with governance to not to issue the F/S to third parties before the necessary amendments have been made
    3. If the F/S are subsequently issued without the amendments seek legal advice
Facts Which Become Known to the Auditor after the Financial Statements Have Been Issued
  • After the F/S have been issued, the auditor has no obligation to perform any audit procedures
  • However, if, after the F/S have been issued, a fact becomes known to the auditor that, had it been known to the auditor at the date of the auditor’s report, may have caused the auditor to amend the auditor’s report:
    1. Discuss the matter with management and those charged with governance
    2. Determine whether the F/S need amendment
    3. If the F/S require amendment, inquire how management intends to address the matter in the financial statements
  • If management amends the financial statements:
    1. Review the steps taken by management to ensure that anyone in receipt of the previously issued F/S with the auditor’s report is informed of the situation
    2. Carry out the audit procedures necessary on the amendment;
    3. Extend the audit procedures to the date of the new auditor’s report; and
    4. Provide a new auditor’s report on the amended F/S. The new auditor’s report should not be dated earlier than the date of approval of the amended F/S
      • If GAAP allows management to restrict the amendment of the F/S to the effects of the subsequent event, the auditor is permitted to restrict the procedures to the amendment. In such cases, the auditor should either:
        • Amend the auditor’s report to include an additional date (double date the audit report) restricted to that amendment that indicates that the auditor’s procedures on subsequent events are restricted solely to the amendment of the F/S described in the relevant note to the F/S; or
          • Example: “(Date of auditor’s report), except as to Note Y, which is as of (date of completion of audit procedures restricted to amendment described in Note Y).”
        • Provide a new or amended auditor’s report that includes a statement in an Emphasis of Matter paragraph or Other Matter paragraph that explains that the auditor’s procedures on subsequent events are restricted solely to the amendment of the F/S as described in the relevant note to the F/S
  • Include in the new or amended auditor’s report an Emphasis of Matter paragraph or Other Matter paragraph referring to a note to the F/S that discusses the reason for the amendment of the previous F/S
  • If management does not take the necessary steps to ensure that recipients of the previously issued F/S is informed of the situation and does not amend the F/S where the auditor believes they need to be amended, notify management and those charged with governance, that the auditor will seek to prevent future reliance on the auditor’s report
  • If mgm’t still does not take these necessary steps to inform recipients of F/S, seek legal advice

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