ISA 560- SUBSEQUENTS EVENTS
Subsequent events are defined as any event occurring after the balance sheet date
Subsequent events therefore include BOTH
 Events occurring between the period end and the date of the auditor‟s report and
 Facts discovered after the date of the auditor‟s report.
Accounting rule IAS 10- events after the reporting period.
IAS 10 covers events) both favourable and unfavourable) that occur between the date of the
financial statements (referred as the “balance sheet date” in the IAS) and the date when the
financial statements are authorized for issue.
IAS 10 „Events after the reporting period‟ identifies 2 types of subsequent events (both
favourable and unfavorable) :
 Adjusting events
 Non adjusting events
NOTE: Post balance sheet events covered by IAS 10 covers period after balance sheet to
date when FS authorize for issue e.g. shorter than subsequent events period as per ISA 560
Adjusting events: these are events providing additional evidence relating to conditions existing
at the balance sheet date: they require adjustments in the FS provided it is material.
Examples:
 Provn for doubtful debts.
 Write down of inventories
 The determination of the purchase or resale price of non current assets purchased or sold
before the year end
 Amounts received or receivable in respect of insurance claims which were being
negotiated at the b/s date.
Non adjusting events: are events concerning conditions which arose after the balance sheet
date, but which may be of such materiality that their disclosure is required to ensure that the FS
are not misleading.
FS are not adjusted with non adjusting events.
Examples:
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Issue of new share or loan capital.
Mergers, reconstruction, acquisitions.
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Change in nature of business.
Strikes, nationalization, decline in value of PPE etc
Financial consequences of losses of non currents assets or inventory as a result of fires or
floods.
Auditing procedures for subsequent events
GENERAL
 Check minutes of critical meetings: check minutes of board, shareholders, and other
meetings after year end which relate to events at or before the year end.
 Make enquiries with management.
 Check management reports: after year end for any items which should have been
included at the year end. (e.g. provn for bad debts, inventory write downs.)
 After year end check for unrecorded accruals and prepayments
 After year end performs cut off: to check if there are unrecorded transactions.
 After year and check banking of cash and cheques: which may relate to year end (
teeming and lading fraud).
 Review budgets or cash flow forecast: enquire if there are new loans or share issue which
may require disclosures.
 Obtain Letter of Representation.
 Meet legal adviser.
1. From year end up to end of audit assignments and up to date of the audit report:
Auditors should perform procedures to identify subsequent events that might require
adjustment or disclosure up to the date of their audit report (e.g from the year end to date of
audit report.)
Procedures include:
 Enquiring into management procedures for the identification of subsequent events.
 Reading minutes of members and directors meetings, audit and other committees.
 Reviewing accounting records: including budgets, cash flow forecast and interim
financial statement.
 Normal post balance sheet work: performed in order to verify year end balances.
 Obtaining letter of representation.
 Meet entity lawyers concerning any new claims and litigation.
 Ask management whether any subsequent event has occurred such as new borrowing
commitment, significant sales of assets, new shares or debentures issued, assets
destroyed by flood, fire.
2. Procedures after date of audit report
 Auditors do not have a duty actively to search for evidence of events occurring after the
date of the audit report but before the Fs have been issued.
 But they should not ignore any knowledge which they acquire, from whatever source.
 If the auditors feel that the information available would have been altered their audit
opinion, had they been aware of it prior to the date of the report, then they discuss the
matter with the directors.
2.1 Subsequents events after audit report and before issue of FS to shareholders.
 In this period, the auditor has no duty to perform procedures or make any enquires about
the FS in this period.
 It is the directors responsibility to inform the auditor of any material subsequent events
detected in this period which may affect the financial statements.
2.1.1 Subsequent events exist and are material and FS amended by directors.
 When the auditor becomes aware of material subsequent events in this period, he should
carry out appropriate audit procedures to determine whether the subsequent event has a
material effect on the FS.
 Directors should be encouraged to amend FS where required (if they have not been sent
to shareholders) and the auditor should issue a new audit report on the new FS.
2.1.2 Subsequents events exist and are material and FS are not amended by directors
 Where directors do not amend FS and the subsequent event is material, the auditor
should consider how the shareholders can be informed of the subsequent event.
 Auditor to proceed by his rights and obligations and where necessary he should seek
legal advice. He may also make a statement at the annual general meeting at which
the FS are approved by shareholders. He may also withdraw his audit report.
2.2 Subsequent events after issue of FS to shareholders and up to AGM.
In this period, the auditor does not have a duty to perform procedures or make any enquires
about the FS in this period.
2.2.1 Subsequent events exist and are material and Fs amended by directors.
 If auditor becomes aware of material subsequent event in this period, directors of the
entity may revise the FS and auditors must issue a new audit report.
 The auditors will also have to report on whether the FS have been revised correctly and
that the new amended FS show a true and fair view.
 Whenever a new audit report is issued auditors should update their subsequent events
review up to date of the new report.
2.2.2 Subsequent events exist and are material and FS are NOT amended by directors.
 He may have to make a statement at the AGM where directors refuse to amend FS and
the auditor considers the subsequent event to be material.
 He may consider whether to withdraw his audit report or not. But he must take legal
advice on this matter.
3. Subsequent events after the AGM
 Auditors have no duty to enquire specifically into events occurring after the general
meeting at which the FS are laid down. But they should inform the directors of any
events materially affecting the FS.