Chapter 6: Complete and Review

SA 560- Subsequent Events

Objective

Events include SAAE and events from Date of Financial Statements - Date of
Audit Report. These events may require adjustment or disclosure in the financial
statements and should be appropriately reflected in them.

 Facts that become known to the auditor after the date of auditor’s report
require the auditor to respond appropriately.
 If these facts had been known at the date of auditor’s report, they may
have caused the auditor to amend the auditor’s report.

Key Dates in Financial Statements and Audit Reporting

 The date of the financial statements refers to the date marking the end of
the latest period covered by the financial statements.
 The date of the auditor’s report is the date on which the auditor dates the
report on the financial statements in accordance with SA 700.
 The date of issue of financial statements:
o The date on which financial statements are made available to third
parties.
o This date depends on the regulatory environment and may be the
date the financial statements are filed with the regulatory authority.
o It is important to note that audited financial statements cannot be
issued without the auditor’s report.
o Furthermore, the date of issue of financial statements must not be
earlier than the date of the audit report.
 The date of approval of financial statements is the date on which those
with recognized authority have asserted that they take responsibility for
the financial statements.

Risk Assessment – Subsequent Events (SE) – 5 Marks

1. Understanding:
o Management processes to identify subsequent events.
 2. Inquiry:
o Management and those charged with governance (M/T) regarding the
impact of subsequent events.
o Assess whether subsequent events affect estimates in financial
statements.
3. Review:
o Minutes of meetings (MOM).
o Interim financial statements.
4. Written Representation:
o Ensure subsequent events requiring adjustment or disclosure are
appropriately adjusted or disclosed.
5. Inquiry Considerations:
o Capital commitments.
o Contingencies.
o Assets (e.g., sale/acquisition, destruction, revaluation, etc.).
o Accounting for unusual transactions.
o Provisions and estimates for long periods.

Facts Known After the Auditor’s Report but Before the

Financial Statements Are Issued
Facts that become known to the auditor after the date of the
auditor’s report but before the date the financial statements
are issued create specific considerations. There is no obligation
for the auditor to perform any audit procedures regarding FS
after the date of AR.
However, if a fact becomes known to the auditor after the date of
the auditor’s report but before the date the FS are issued,
the auditor must evaluate its significance. Had it been known at
the time of the auditor’s report, it may have caused the auditor
to amend the auditor’s report.
In such cases, the auditor shall take the following steps:
 Discuss the matter with MGT / TCWG.
 Determine whether the FS need amendment and, if so,
how to proceed.
  Inquire how management intends to address the matter
in the financial statements.

1. Management Amends Financial Statements

 Perform audit procedures on the amendment.
 Extend audit procedures up to the new auditor’s report date.
 Issue a new auditor’s report on the amended financial
statements.
2. Date of the New Audit Report
 Must not be earlier than the date of approval of the
amended financial statements.
When the management does not amend the FS but the auditor
believes they need to be amended.
 If the report has not yet been provided:
o Modify the opinion as required by SA 705.
o Then provide the auditor's report.
 If the report has already been provided to the entity:
o Notify management and those charged with governance
not to issue the financial statements to third parties
before the necessary amendments have been made.
If financial statements have been issued without the necessary
amendments, the auditor shall take appropriate action to seek to
prevent reliance on the auditor’s report before the necessary
amendments have been made.

 Facts Which Become Known to the Auditor After the Financial

Statements Have Been Issued:
o The auditor has no obligation to perform any audit procedures
regarding such financial statements (FS).
 However, if a fact becomes known to the auditor after the financial
statements have been issued that:
o Had it been known at the date of the auditor’s report,
o It may have caused the auditor to amend the auditor’s report,
 The Auditor Shall:
o Discuss the matter with Management (Mgt.) and Those Charged with
Governance (TCWG).
 o Determine whether the financial statements need amendment and, if
so, take necessary actions.
o Inquire how Management intends to address the matter in the
financial statements.
If Management (Mgt) Amends the Financial Statements:
 Auditor Shall:
o Carry out audit procedures on the amendment.
o Review the steps taken by management to inform the recipients of FS
with the auditor's report about the situation.
o Extend the audit procedures to the date of the new auditor's report.
o Provide a new auditor’s report on the amended financial statements.
o Include an Emphasis of Matter (EOM) paragraph in the amended
auditor’s report, referring to a note in the FS that discusses the reason
for the amendment.
If Management Takes No Steps (Neither Amends Nor Informs the Recipients):
 The Auditor Shall:
o Notify Management (Mgt) and Those Charged with Governance
(TCWG).
o Prevent Future Reliance:
 The auditor will seek to prevent future reliance on the auditor’s
report (AR).
o No Action Taken by Management:
 If still no necessary action is taken, the auditor must act
accordingly.
o Take Appropriate Action to Prevent Reliance:
 The auditor will take necessary action to seek to prevent
reliance on the auditor’s report.
Audit Approach for Reporting on Subsequent Events
Permitted Amendments
 L/R permits amendments of FS to Subsequent Events only.
 Auditors focus only on specific statement amendments.
1. Auditors should amend reports with an additional date, indicating:
o That the auditor’s procedures on subsequent events are restricted
solely to the amendment of the FS described in the relevant note to the
financial statements.
Or
2. auditors need to issue new or updated reports with an EOM or OM
paragraph stating:
 o That the auditor’s procedures on subsequent events are restricted
solely to the amendment of the FS described in the relevant note to the
financial statements.

 Otherwise, a broader approach is required:

o Auditors must update procedures until the new report’s date.
o Issue the report post-approval of amended statements and reflect
changes therein.

Subsequent Events: Events occurring between the date of the

financial statements and the date of the auditor’s report.
Subsequent facts: Facts that become known to the auditor after the
date of the auditor’s report.
Types of Subsequent Events:
Those that provide evidence of conditions existing at the date of the
financial statements (Adjusting events).
Those that provide evidence of conditions arising after the date of
the financial statements (non-adjusting events).
Auditor's Responsibilities for Subsequent Events:
The auditor shall perform audit procedures to obtain sufficient
appropriate audit evidence about whether subsequent events that
require adjustment or disclosure are identified.
These procedures shall be performed up to the date of the auditor’s
report.
Procedures to Identify Subsequent Events:
Understanding management’s procedures for identifying
subsequent events.
Inquiring with management about subsequent events.
Reviewing minutes of meetings held after the date of the financial
statements.
Reading latest interim financial statements after the reporting
period.
Facts Discovered after the Auditor’s Report but before the Financial
Statements are Issued:
The auditor shall discuss the matter with management and
determine whether the financial statements need amendment.
If financial statements are amended, the auditor shall carry out
necessary audit procedures and provide a new report on the
amended financial statements.
Facts Discovered after the Financial Statements are Issued:
The auditor has no obligation to perform audit procedures after the
issuance of financial statements.
However, if the auditor becomes aware of a fact that existed at the
date of the auditor’s report, and which may have affected the
report, the auditor shall:
Discuss the matter with management.
Determine whether the financial statements need revision.
Take necessary action to address the matter.
If Management does not take Appropriate Action:
The auditor shall notify those charged with governance.
The auditor shall take steps to prevent reliance on the audit report.
Communication with Management and Those Charged with
Governance:
The auditor shall communicate with management and those
charged with governance regarding significant subsequent events.
The communication should include the nature of the event and its
possible effect on the financial statements.
Documentation Requirements for Subsequent Events:
The auditor shall document audit procedures performed to identify
subsequent events.
The auditor shall document the conclusions drawn about whether
subsequent events need adjustment or disclosure.
If management does not take appropriate action, the auditor shall
document discussions with management and those charged with
governance.
Special Considerations for Listed Entities:
The auditor shall assess the implications of subsequent events on
market-sensitive information.
The auditor shall consider regulatory requirements regarding public
disclosures of material subsequent events.
Responsibility for Subsequent Events in the Case of a Group Audit:
The group auditor shall obtain an understanding of how component
auditors identify subsequent events.
The group auditor shall evaluate the impact of subsequent events at
the component level on the group financial statements.
Modifications to the Auditor’s Report due to Subsequent Events:
If the auditor identifies a material subsequent event requiring
modification, the auditor shall include an Emphasis of Matter
paragraph or modify the opinion accordingly.
If the financial statements are amended after issuance, the auditor
shall issue a new audit report with a dual-date or updated report
date.
Withdrawal from the Engagement:
If management refuses to take corrective action for a material
subsequent event, the auditor may consider withdrawing from the
engagement.
The auditor shall seek legal advice before withdrawing from the
engagement.

SA 570 Going Concern

Adequacy of Disclosures When Events or Conditions Have Been Identified

1. Material Uncertainty Exists
 Auditor Shall Determine Whether FS
 Adequately Disclose:
o Principal Events and Conditions
o Management’s Plan to deal with these events or conditions
o Clearly States MU Exists that may cast significant doubt on the
entity’s ability to continue as a going concern.
o Entity may be unable to realize its assets and discharge its liabilities
in the normal course of business.
2. No Material Uncertainty Exists
 Auditor Shall Determine Whether FS
 Provide Adequate Disclosures about these events or conditions.
 As per AFRF (Applicable Financial Reporting Framework)
Implications for the Auditor’s Report
1. Use of Going Concern (GC) Not Apt
 Express Adverse Opinion
2. Use of Going Concern is Appropriate, but Material Uncertainty Exists
 (A) Adequate Disclosure About Material Uncertainty is Made in the FS
o Express Unmodified Opinion
 o Auditor’s report shall include a separate section:
 "Material Uncertainty Related to Going Concern"
o Draw attention to the note in FS that discloses the matter:
 May cast significant doubt on the entity’s ability to continue
as a going concern.
 Auditor’s opinion is not modified in respect of this matter.
 (B) Adequate Disclosure of Material Uncertainty is Not Made in FS
o Express Qualified, Adverse, or Other Appropriate Opinion in
accordance with SA 705.
o In Basis for Opinion paragraph, state that:
 Material Uncertainty Exists, casting significant doubt on the
entity’s ability to continue as a going concern.
 FS do not adequately disclose this matter.