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1、Chapter 21Review for Subsequent Events1Lecturer 陈丹Topic listDefinition of Subsequent EventAuditors responsibilityAudit proceduresImpact on audit report2Year endF/Ss issued3Definition of Subsequent EventIAS 10: subsequent events are events occurring between the period-end and the date of financial st
2、atements issued. Two types of Subsequent Event defined by IAS 104Adjusting eventsThose events that provide evidence of conditions that existed at the yearend date.Non-adjusting eventsThose events that are indicative of conditions that arose after the year-end date.Subsequent Event Settlement of a co
3、urt case with legal proceeding issued before the year-endlegal proceeding issued after the year-endSale of inventory after year-end providing evidence of its NRV at the year-endInventory suddenly becomes obsolete because of a technology change after the year-endFire after year-end causing destructio
4、n of major plant 5Two types of Subsequent Event defined by IAS 10TypeTypeANAANANACase 1 A customer has been experiencing cash flow problems and its year-end balance is $03 million. After the year end, the company has just become aware that its customer is experiencing significant going concern diffi
5、culties. Revenue for the year is $78 million and PBT is $75 million. 6Two types of Subsequent Event defined by IAS 10Case 2 A customer has been experiencing cash flow problems and its year-end balance is $1 million. After the year end, the company has just become aware that its customer is experienc
6、ing significant going concern difficulties. Revenue for the year is $78 million and PBT is $75 million. 7Two types of Subsequent Event defined by IAS 10Case 3 A customer has been experiencing cash flow problems and its year-end balance is $0.5 million. After the year end, the company has just become
7、 aware that its customer is experiencing significant going concern difficulties. Revenue for the year is $78 million and PBT is $75 million. 8Two types of Subsequent Event defined by IAS 10Case 4An explosion occurred at an offsite storage location after the year end. This resulted in some damage to
8、inventory and PPE. Management have investigated the cause of the explosion and believe that they are unlikely to be able to claim on their insurance. The value of damaged inventory and PPE was $09 million and it now has no scrap value. Revenue for the year is $55 million and PPT is $56 million.9Two
9、types of Subsequent Event defined by IAS 10Case 5An explosion occurred at an offsite storage location after the year end. This resulted in some damage to inventory and PPE. Management have investigated the cause of the explosion and believe that they are unlikely to be able to claim on their insuran
10、ce. The value of damaged inventory and PPE was $02 million and it now has no scrap value. Revenue for the year is $55 million and PPT is $56 million.10Two types of Subsequent Event defined by IAS 10Case 6An explosion occurred at an offsite storage location after the year end. This resulted in some d
11、amage to inventory and PPE. Management have investigated the cause of the explosion and they are likely to be able to claim $0.2 million on their insurance. The value of damaged inventory and PPE was $09 million and it now has no scrap value. Revenue for the year is $55 million and PPT is $56 millio
12、n.11Two types of Subsequent Event defined by IAS 10Adjustment (adjust BV) amendment (adjustment or disclosure)12If the subsequent event is immaterial, the financial statements do not require amendment. 13Impact of subsequent event on FSSubsequent eventAdjusting eventNon-adjusting eventNoYesYesNoprov
13、iding evidence of conditions that existed at the year-end date?material?DisclosureNo amendmentYesNoAdjustmentNo amendmentYear endF/S approved by members (AGM)Auditors report signedF/S approved by mgt, BODF/S issued15Definition of Subsequent EventISA 560: Events occurring between the period-end and t
14、he date of the auditors report and also include facts discovered after the auditors report has been signed. Year-endPassive dutyActive dutyF/S approved by members (AGM)Auditors report signedF/S approved by mgt, BODF/S issuedAuditors responsibilityPeriod to whichPeriod to whichreview forreview forsub
15、sequentsubsequentevents appliesevents appliesPeriod in whichPeriod in whichsubsequentsubsequentdiscovery ofdiscovery offacts is madefacts is made1617Active dutyAuditor shall perform procedures designed to obtain sufficient appropriate audit evidence that all events up to the date of auditors report
16、have been identified, properly accounted for or disclosed in the financial statements.Passive dutyAuditor does not have any obligation to perform procedures to identify subsequent events after the date of the auditors report.Auditors responsibilityAudit procedures1.Inquire mgt and those charged with
17、 governance whether there have been any subsequent events (eg. Sales or destruction of assets, litigations or claims)2.Discuss the identified subsequent event with mgt and those charged with governance 3.Review any documentation on the subsequent events, eg. Board minutes, mgt report, report from go
18、vernment agency, correspondence between the solicitor and the entity.4.Confirm the event from relevant third party, eg. Government agency, entitys solicitor.5.Determine whether the F/Ss need adjustment or disclosure.186. Inquire how mgt intends to address the matter in the F/Ss.19Audit procedures Au
19、dit opinionUndertake any necessary audit procedures on the changes made.Extend audit procedures for identifying subsequent events that may require amendment in the F/S to the date of the (new) auditors report.Obtain written representation that all subsequent events have been adjusted or disclosed.If
20、 F/S have been issued, review the steps taken by mgt to ensure that anyone in receipt of the previous issued F/Ss is informed, eg. Publish a notice on the entitys website. Unqualified opinion (with emphasis of matter paragraph if F/Ss have been issued)(1)Mgt does amend F/Ss(2) Mgt does not amend F/S
21、sAudit procedures Audit opinionAuditors report provided to the mgt?NoModify the opinionQualified or adverse opinionYesF/S issued to the public?NoNotify the mgt not to issue the F/S before the amendments are made.YesTake action to prevent reliance on the auditors report, eg. Speak on the AGM.20Summar
22、yExplain whether F/S need amendmentExplain the responsibilities of auditors regarding subsequent eventsDiscuss the procedures to be undertaken in performing a subsequent events reviewExplain the impact on the audit report21Dec 14 Q4bJune 13 Q5bcDec 11 Q5Dec 08 Q5aDec 05 Q422Past Exam QuestionsJune 1
23、3 Q5b23Correctly state whether an event was adjusting or not, however could not explain why.Ignore the materiality calculation completely.Give vague and unrealistic procedures, such as “write to the receivable and ask them if they will pay the outstanding balance”.24June 13 Q5b Common MistakesNot un
24、derstand the implication of the insurance cover that it was only if uninsured losses were material then they would potentially need disclosure.Provide a scatter gun approach of suggesting every possible audit report option.Consider “emphasis of matter” paragraph as an alternative to an unmodified opinion or an “except for” qualification.25June 13 Q5b Common MistakesEnd of Chapter 2126
