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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 procedures 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 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.. Which of the following procedures should an auditor generally perform regarding subsequent events?Which of the following procedures should an auditor generally perform regarding subsequent events? Compare the latest available interim financial statements issued after year-end with the financial statements being audited.
What are examples of subsequent events?An example of a subsequent event that is an adjusting event is the settlement of a lawsuit that happened before the balance sheet date. The company would have assessed an amount for contingent losses pending the lawsuit. Once the lawsuit settles, they would adjust the contingent amount to match the actual losses.
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