International Standard on Auditing 560: Subsequent Events deals with auditor’s responsibility towards events that occur after reporting date and especially before the auditor’s report is issued.
The auditor shall perform audit procedures designed to obtain sufficient appropriate audit evidence that all events occurring between the date of the financial statements and the date of the auditor’s report that require adjustment of, or disclosure in the financial statements have been identified.
Required:
Explain FIVE audit procedures to test subsequent events. (5 marks)
View Solution
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.