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Hello, when I am reading bpp textbook, I saw the following statement but cannot understand what it means.
“these are required under ISA560:
Where law, regulation or the financial reporting framework does not prohibit management from restricting the amendment of the financial statements to the effects of the subsequent event or events causing that amendment and those responsible for approving the financial statements are not prohibited from restricting their approval to that amendment, the auditor is permitted to restrict the audit procedures on subsequent events to that amendment.”Can someone explain further what it means?
Many thanks.It could be the case that local law (or regulation or the framework – from now on I’ll just refer to these three as “law”) restricts any amendment of prior years’ finalised financial statements that have been filed with the local authority (in the UK that would be the Registrar of Companies).
Equally, it could be the case that are are restrictions placed on the company’s management with reference to the availability to amending prior years’ filed financial statements.
If neither of those two types of restriction is in place, then the auditor is permitted to restrict this year’s audit work on subsequent events to simply auditing the matter giving rise to any appropriate amendment.
If however there are restrictions, then the auditor will need to carry out extended audit procedures to determine the cumulative effect of all prior year adjustments which are not reflected in the financial statements
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