Chapter 7
Subsequent events
I.A.S 10: Subsequent events or events that take place before the reporting date
There are 2 types of subsequent events :
1. Adjusting events : Events which provide evidence of conditions before the balance
sheet reporting date for example :
. Receivables gone bad
. Inventory gone obsolete
. Going concern
2. Non adjusting events : Events which do not provide evidence of conditions that
existed at balance sheet date for example :
. Fire
. Flooding
.Terrorism
What is auditor’s responsibilities in subsequent events :
Up to the date of signing the report or before the report is signed the auditor has an
active responsibility. He must ensure all events up to the date of signing the report have
been identified and adjusted or disclosed by the company accordingly.
After signing of the audit report the auditor now has a passive responsibility which means
that he is not responsible at all, however if he becomes aware of facts that had been known
to him at the date of signing the report would have caused him to amend his report, he
should discuss with the management and ask them to revise their financial statements. If
the management agrees to revise the report then the auditor should perform new
procedures and issue a new audit report. If however the management refuses to revise their
report then the auditors should take necessary steps to prevent any sort of reliance on that
particular audit report.
Answer plan for a case based question on subsequent events :
1. Give a short intro about the case
2. Write “under I.A.S 10 it is an adjusting/non adjusting event” and it needs to be
adjusted/disclosed in the financial statements.
, 3. Write 3 audit procedures for example : Discuss with management, inspect supporting
document and take expert or legal advice.
4. Find the materiality
5. State the impact on the audit report as per the rules learned
Humphries
b.) Receivable : A customer of Humphries who owes them 0.3 million $ is facing going
concern problems, but since he is an old customer the company believes that he will pay
at least some of the amount back. Under I.A.S 10 this is an adjusting event as it provides
evidence of conditions that exists at balance sheet date, hence it will have to be adjusted
in the balance sheets. The following audit procedures should be performed :
. Discuss with management as to why they think that the customer will pay some
amount to them.
. Inspect supporting documents like sales invoice, correspondence with receivables etc
. Take legal advice as to initiate legal proceedings against the receivables.
The balance is immaterial as it represents 4% of profits hence there will be no impact on
the audit report and an unmodified opinion will be given.
Subsequent events
I.A.S 10: Subsequent events or events that take place before the reporting date
There are 2 types of subsequent events :
1. Adjusting events : Events which provide evidence of conditions before the balance
sheet reporting date for example :
. Receivables gone bad
. Inventory gone obsolete
. Going concern
2. Non adjusting events : Events which do not provide evidence of conditions that
existed at balance sheet date for example :
. Fire
. Flooding
.Terrorism
What is auditor’s responsibilities in subsequent events :
Up to the date of signing the report or before the report is signed the auditor has an
active responsibility. He must ensure all events up to the date of signing the report have
been identified and adjusted or disclosed by the company accordingly.
After signing of the audit report the auditor now has a passive responsibility which means
that he is not responsible at all, however if he becomes aware of facts that had been known
to him at the date of signing the report would have caused him to amend his report, he
should discuss with the management and ask them to revise their financial statements. If
the management agrees to revise the report then the auditor should perform new
procedures and issue a new audit report. If however the management refuses to revise their
report then the auditors should take necessary steps to prevent any sort of reliance on that
particular audit report.
Answer plan for a case based question on subsequent events :
1. Give a short intro about the case
2. Write “under I.A.S 10 it is an adjusting/non adjusting event” and it needs to be
adjusted/disclosed in the financial statements.
, 3. Write 3 audit procedures for example : Discuss with management, inspect supporting
document and take expert or legal advice.
4. Find the materiality
5. State the impact on the audit report as per the rules learned
Humphries
b.) Receivable : A customer of Humphries who owes them 0.3 million $ is facing going
concern problems, but since he is an old customer the company believes that he will pay
at least some of the amount back. Under I.A.S 10 this is an adjusting event as it provides
evidence of conditions that exists at balance sheet date, hence it will have to be adjusted
in the balance sheets. The following audit procedures should be performed :
. Discuss with management as to why they think that the customer will pay some
amount to them.
. Inspect supporting documents like sales invoice, correspondence with receivables etc
. Take legal advice as to initiate legal proceedings against the receivables.
The balance is immaterial as it represents 4% of profits hence there will be no impact on
the audit report and an unmodified opinion will be given.
