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Hi Sir, if a lawsuit is filed after year end but prior to audit report being signed and the amount is material – is this considered as an adjusting even or not? since if no lawsuit was filed the FS would have been correct.
Thanks in advance
If the lawsuit relates to an event that occurred before year end then it could be an adjusting event as it gives evidence that a liability might have come into existence during the previous year. The law suit does not cause the liability – that would have been caused by something like an accident before year end. The law suit provides evidence that a liability might exist at year end.However, a judgement has to be made as to how likely it is that the case will be successful. We are having to deal with both subsequent events and contingent liabilities.
If the suit had little chance of success, nothing needs to be said about it.
If there is a possible liability there should be a note.
If the liability is probable, a provision should be set up.
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