IAS 10 states that if an entity obtains information about an adjusting event after the reporting period, it should update the financial statements to allow for this new information. Accordingly, an entity shall adjust the amounts recognised in its financial statements to reflect the adjusting events after the reporting period.
Non-adjusting events after the reporting period are treated differently. IAS 10 states that an entity shall not adjust the amounts recognised in its financial statement to reflect non-adjusting events after the reporting period. If a non-adjusting event is a material, it must be disclosed. If it is not disclosed it could influence the economic decisions taken by users of the financial information.
The disclosure should include.

• The nature of the event and
• An estimate of its financial effect or a statement that such an estimate cannot be made.

After the Auditor’s report is signed but before the financial statements are issued
after the Auditor’s report is signed but before the financial statements are issued, it is the responsibility of management to bring any such events to the attention of the Auditor and make the necessary adjustments or disclosure to the financial statements for the Auditor to validate the amendment and issue a fresh report on the financial statement which will bear a date after the amended financial statement are approved by management. Failure to amend the financial statements may result in the Auditor withdrawing the audit report and issuing a new report or prevent further reliance on the report depending on whether the report is still with the Auditor or has been released to management.

Audit Procedures to Test Subsequent Events

• Inquiries of management
• Status of items involving subjective judgment
• Status of items accounted for using preliminary or inconclusive data
• Whether there are any new commitments, borrowings or guarantees
• Whether there have been any:
• Sales or destruction of assets
• Issues of share/debentures or changes in business structure
• Developments involving risk areas, provisions and contingencies
• Unusual accounting adjustments
• Major events (eg going concern problems) affecting appropriateness of accounting policies for estimates
• Litigations or claims
  Other Procedures
• Review management procedures for identifying subsequent events to ensure that such events are identified
•  Read minutes of general board/committee meetings and enquire about unusual items.
• Review latest available interim financial statement and budgets, cash flow forecast and other management reports.
• Obtain evidence concerning any litigation or claims from the company’s solicitors (only with client permission).
• Obtain written representation that all events occurring subsequent to the period-end which need adjustment or disclosure have been adjusted or disclosed.

Between the year-end date and the date the auditor’s report is signed, the auditors shall perform audit procedures which will identify and detect all material subsequent events which require adjustment of or disclosure in the financial statements.
Additional audit procedures are not required where satisfactory audit evidence has been gained.

The auditor has no obligation to perform any audit procedures between the date the auditor’s report is signed and the date the financial statements are issued.

However, if a fact becomes known that would have influenced the auditor’s report had the auditor known it at the date the auditor’s report was signed then the issue shall be discussed with management to determine whether the financial statements need amendment.

Where the financial statements need amending, additional audit procedures shall be conducted on that area and the original subsequent events review extended to the date of the of the new auditor’s report which will be issued.

If management refuse to amend the financial statements and the auditor’s report has already been provided to the entity, and if management intend to issue the financial statements with this report, the auditor shall take steps to prevent reliance on the report. This might include speaking at the AGM or resigning.