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Definitions
Subsequent events
Subsequent events are events, both favourable and unfavourable, that:
- occur between the balance sheet date and the date of the auditor’s report; or
- are discovered after the date of the auditor’s report but before the financial statements are issued; or
- are discovered after the financial statements have been issued.
Events in any of these categories may provide evidence of conditions existing at the balance sheet date (which, if material, require adjustments to the accounts) or indicate conditions that arose after that date (which, if material, require disclosure in the accounts).
Instructions
Objectives of the auditor
The objectives of the auditor are to:
- obtain sufficient, relevant and reliable audit evidence about whether events occurring between the date of the financial statements and the date of the
[link title="auditor's%20report" link="%2Faware%2FGAP%2FPages%2FCA-FA%2FReporting%2FStatement-of-Assurance.aspx" /]
that [link title="materially" link="%2Faware%2FGAP%2FPages%2FCA-FA%2FPlanning%2FMateriality.aspx" /]
affect the financial statements are appropriately reflected in those financial statements; and
- respond appropriately to facts that become known to the auditor after the date of the auditor's report that materially affect the financial statements.
The actions to be taken by the auditor will depend on which of the time periods is involved:
Events occurring between the balance sheet date and the date of the auditor’s report
For events occurring between the balance sheet date and the date of the auditor's report, the auditor should perform audit procedures designed to obtain sufficient appropriate [link title="audit%20evidence" link="%2Faware%2FGAP%2FPages%2FAudit-evidence.aspx" /]
that any such events that may require adjustment of, or disclosure in, the financial statements have been identified. However, the auditor is not expected to conduct a continuing review of all matters where audit procedures have already provided satisfactory conclusions.
The audit procedures are to be performed as near as practicable to the date of the auditor’s report, and take into account the auditor’s [link title="risk%20assessment" link="%2Faware%2FGAP%2FPages%2FCA-FA%2FPlanning%2FAudit-risk-and-risk-assessment-procedures.aspx" /]
. While dependent on the time that has elapsed since the last audit mission, such audit procedures typically include:
- reviewing management procedures to ensure that subsequent events are identified;
- reading minutes of meetings of those charged with governance held after the balance sheet date;
- reading the entity’s latest available interim financial statements, budgets, cash-flow forecasts and other related management reports;
- enquiring of management as to whether any subsequent events have occurred which might affect the financial statements.
When the auditor identifies events which [link title="materially" link="%2Faware%2FGAP%2FPages%2FCA-FA%2FPlanning%2FMateriality.aspx" /]
affect the financial statements, (s)he should determine whether such events are properly accounted for and adequately disclosed in the financial statements.
Events discovered after the date of the auditor’s report but before the date the financial statements are issued
Concerning facts which become known to the auditor after the date of the auditor's report but before the financial statements are issued, the auditor has no responsibility to perform audit procedures or make any enquiry regarding the financial statements after the date of the auditor’s report. During the period from the date of the auditor’s report to the date the financial statements are issued, responsibility for informing the auditor of facts which may affect the financial statements lies with management.
When, after the date of the auditor’s report but before the date the financial statements are issued, the auditor becomes aware of a fact which may [link title="materially" link="%2Faware%2FGAP%2FPages%2FCA-FA%2FPlanning%2FMateriality.aspx" /]
affect the financial statements, (s)he should discuss the matter with management, consider whether the financial statements need amendment, and determine whether management will amend the financial statements.
When management amends the financial statements, the auditor performs the audit procedures necessary and issues a new [link title="report" link="%2Faware%2FGAP%2FPages%2FCA-FA%2FReporting%2FStatement-of-Assurance.aspx" /]
on the amended financial statements. The new report is dated not earlier than the date of approval of the amended financial statements and, accordingly, the audit procedures referred to above would be extended to the date of the new auditor’s report.
When management does not amend the financial statements and the auditor believes they need to be amended, and the auditor’s report has not been released to the entity, the auditor should express a [link title="qualified%20opinion%20or%20an%20adverse%20opinion" link="%2Faware%2FGAP%2FPages%2FCA-FA%2FReporting%2FModified-opinion.aspx" /]
. When the auditor’s report has been released to the entity, the auditor notifies management or those charged with governance, as appropriate, not to issue the financial statements and the auditor’s report thereon to third parties. If the financial statements are subsequently released, the auditor needs to take action to prevent reliance on the auditor’s report, subject to advice from the ECA's Legal Service.
Events discovered after the financial statements have been issued
After the financial statements have been issued, the auditor has no obligation to make any enquiry regarding such financial statements. However, if after the financial statements have been issued, the auditor becomes aware of a fact which existed on the date of the auditor’s report and which, if known on that date, may have caused the auditor to modify his/her report, (s)he should consider if the matter needs to be brought to the attention of stakeholders, e.g. through a report to the [a-glossary term="Discharge%20authority"]discharge authority[/a-glossary]
.
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[link new-window title="ISA%20560" link="https%3a%2f%2fwww.ifac.org%2fsystem%2ffiles%2fpublications%2ffiles%2fIAASB-2020-Handbook-Volume-1.pdf%23INTERNATIONAL%2520STANDARD%2520ON%2520AUDITING%2520560" /]
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