ACCA AAA · Chapter 22
Subsequent events
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IAS 10 classification and ISA 560 responsibilities
Subsequent events classify, investigate, respond
IAS 10 period
- Reporting date to authorisation of financial statements
- Adjusting: evidence of conditions at reporting date
- Adjust financial statements for the evidence
Example: customer liquidation
- If difficulty existed at reporting date
- Reassess loss allowance on receivable
Non-adjusting
- Condition arose after reporting date
- Material event: disclose nature and financial effect
- Or state that financial effect cannot be estimated
Example: factory fire
- After reporting date: do not adjust its carrying amount
Active identification procedures
- Understand management’s process for identifying events
- Enquire of management and TCWG
- Read post-reporting-date meeting minutes
- Review latest interim statements and management info
- Inspect later cash receipts and relevant transactions
- Obtain written representation on adjustment/disclosure
Target significant developments
- Inspect minutes, forecasts, contracts and legal letters
- Consider litigation, restructuring and acquisitions
- Consider covenants, impairment and going concern
Timeline
- Reporting date → FS authorised for issue → Date of auditor’s reports → FS issued
If a relevant fact becomes known
- No obligation to perform further procedures
- Discuss the fact with management and TCWG
- Determine whether financial statements need amendment
- Enquire how management intends to address it
If financial statements are amended
- Perform necessary procedures
- Issue a new auditor’s report
If management refuses
- Consequences depend on whether report already supplied
- Act to prevent reliance where necessary
If a relevant fact becomes known
- No active duty to seek new events
- Discuss with management
- Determine whether amendment is necessary
If financial statements are amended
- Perform procedures on the amendment
- Review actions to inform previous recipients
- Issue a new report drawing attention to amendment
- Explain why financial statements were amended
If management refuses necessary action
- Take steps to prevent reliance on auditor’s report
- Obtain legal advice where appropriate
Exam distinction
- Timing changes the auditor’s response
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