THE UNIVERSITY OF DODOMA

DEPARTMENT OF ACCOUTNING AND FINANCE

ADVANCED AUDITING AND ASSURANCE SERVICES - AF 316

SUBSEQUENT EVENTS
1.0 Subsequent events Vs Post-balance sheet events
In ISA 560 “Subsequent events” is used to refer to both events occurring between the date of the financial
statements and the date of the auditor’s report, and facts discovered after the date of the auditor’s report.
The terminology used in International Accounting Standard (IAS) 10 is somewhat different, as it uses the
phrase “Events After the Balance Sheet Date,”, which means ‘events, both favorable and unfavorable, that
occur between the date of the financial statements (referred to as the “balance sheet date” in the IAS) and the
date when the financial statements are authorized for issue. IAS 10 identifies two types of events, namely:
i] Those that provide evidence of conditions that existed at the date of the financial statements; and
ii] Those that are indicative of conditions that arose after the date of the financial statements.
The requirement of ISA 560 is clear, that: “The auditor should consider the effect of subsequent events on the
financial statements and on the auditor’s report”.

2.0 Auditing and Financial Reporting Timeline

Because the standard deals with a number of dates, it is important to be able to draw a timeline for important
audit dates. The following dates have been defined by ISA 560
a] Date of the financial statements
This is the date of the end of the latest period covered by the financial statements, which is normally the date of
the most recent balance sheet in the financial statements subject to audit.
b] Date of approval of the financial statements
This is the date on which those with the recognized authority (usually the Board of Directors/ Trustees) assert
that they have prepared the entity’s complete set of financial statements, including the related notes, and that
they have taken responsibility for them.
c] Date of the auditor’s report
This is the date selected by the auditor to date the report on the financial statements. The auditor’s report is not
dated earlier than the date on which the auditor has obtained sufficient appropriate audit evidence on which to
base the opinion on the financial statements. Sufficient appropriate audit evidence includes evidence that the
entity’s complete set of financial statements has been prepared and that those with the recognized authority have
asserted that they have taken responsibility for them. Consequently, the auditor cannot date the report at a date
earlier than the date the Financial Statements are approved by the Board of Directors.
d] Date the financial statements are issued

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 This is the date that the auditor’s report and audited financial statements are made available to third parties,
which may be, in many circumstances, the date that they are filed with a regulatory authority.

The timeline can further been categorized by ISA 560 to sub-categories of subsequent events into:
i] Events occurring up to the date of the auditor’s report
ii] Facts discovered after the date of the auditor’s report but before the date the financial statements are issued
iii] Facts discovered after the financial statements have been issued

3.0 Events Occurring up to the Date of the Auditor’s Report

ISA 560 requires the auditor to perform audit procedures designed to obtain sufficient appropriate audit
evidence that all events up to the date of the auditor’s report that may require adjustment of, or disclosure in,
the financial statements have been identified.
These procedures are in addition to procedures which may be applied to specific transactions occurring after the
date of the financial statements to obtain audit evidence as to account balances as at the date of the financial
statements, for example, the testing of inventory cutoff and payments to creditors. The auditor is not, however,
expected to conduct a continuing review of all matters to which previously applied audit procedures have
provided satisfactory conclusions.
The audit procedures to identify events that may require adjustment of, or disclosure in, the financial statements
would be performed as near as practicable to the date of the auditor’s report. Such audit procedures take into
account the auditor’s risk assessment and ordinarily include the following:
i] Reviewing procedures management has established to ensure that subsequent events are identified.
ii] Reading minutes of the meetings of shareholders, those charged with governance, including established
committees such as relevant executive committees and the audit committee, held after the date of the
financial statements and inquiring about matters discussed at meetings for which minutes are not yet
available.
iii] Reading the entity’s latest available interim financial statements and, as considered necessary and
appropriate, budgets, cash flow forecasts and other related management reports.
iv] Inquiring, or extending previous oral or written inquiries, of the entity’s legal counsel concerning
litigation and claims.
v] Inquiring of management as to whether any subsequent events have occurred which might affect the
financial statements. Examples of inquiries of management on specific matters are:
 The current status of items that were accounted for on the basis of preliminary or inconclusive data.
 Whether new commitments, borrowings or guarantees have been entered into.
 Whether sales or acquisitions of assets have occurred or are planned.
 Whether the issue of new shares or debentures or an agreement to merge or liquidate has been made
or is planned.
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  Whether any assets have been appropriated by government or destroyed, for example, by fire or
flood.
 Whether there have been any developments regarding risk areas and contingencies.
 Whether any unusual accounting adjustments have been made or are contemplated.
 Whether any events have occurred or are likely to occur which will bring into question the
appropriateness of accounting policies used in the financial statements as would be the case, for
example, if such events call into question the validity of the going concern assumption.

When the auditor becomes aware of events which materially affect the financial statements, the auditor should
consider whether such events are properly accounted for and adequately disclosed in the financial statements.

4.0 Facts Discovered After the Date of the Auditor’s Report but Before the Date the Financial Statements
are issued
The auditor does not have any responsibility to perform audit procedures or make any inquiry 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, the responsibility to inform the auditor of facts which may
affect the financial statements rests 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 materially affect the financial statements, the auditor should consider
whether the financial statements need amendment, should discuss the matter with management, and should take
the action appropriate in the circumstances.
In case the management amends the financial statements, the auditor would carry out audit procedures
necessary in the circumstances and would provide management with a new report on the amended financial
statements. This will affect the date of the auditor’s report, as the new report would be dated not earlier than
the date of approval of the amended financial statements and, accordingly, the audit procedures for events
occurring up to the date of auditor’s report will have to be extended to the date of the new auditor’s report.
Where management does not amend the financial statements in circumstances where 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
qualified opinion or an adverse opinion.
In case the auditor’s report has been released to the entity, the auditor would notify those charged with
governance of the entity 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. The action taken will depend on the auditor’s legal rights and obligations and the
recommendations of the auditor’s lawyer.

5.0 Facts discovered after the Financial Statements have been issued
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After the financial statements have been issued, the auditor has no obligation to make any inquiry regarding
such financial statements. However, when, after the financial statements have been issued, the auditor
becomes aware of a fact which existed at the date of the auditor’s report and which, if known at that date, may
have caused the auditor to modify the auditor’s report, the auditor should:
i] Consider whether the financial statements need revision,
ii] Discuss the matter with management, and
iii] Take the action appropriate in the circumstances.

When management revises the financial statements, the auditor would

i] Carry out the audit procedures necessary in the circumstances,
ii] Review the steps taken by management to ensure that anyone in receipt of the previously issued
financial statements together with the auditor’s report thereon is informed of the situation, and
iii] Issue a new report on the revised financial statements.

The new auditor’s report should include an emphasis of a matter paragraph referring to a note to the financial
statements that more extensively discusses the reason for the revision of the previously issued financial
statements and to the earlier report issued by the auditor. Again, the new auditor’s report would be dated not
earlier than the date of approval of the revised financial statements and, accordingly, the audit procedures for
events occurring up to the date of the auditor’s report would ordinarily be extended to the date of the new
auditor’s report.
When management does not take the necessary steps to ensure that anyone in receipt of the previously issued
financial statements together with the auditor’s report thereon is informed of the situation and does not revise
the financial statements in circumstances where the auditor believes they need to be revised, the auditor would
notify those charged with governance of the entity that action will be taken by the auditor to prevent future
reliance on the auditor’s report.
The action taken will depend on the auditor’s legal rights and obligations and the recommendations of the
auditor’s lawyers.
It may not be necessary to revise the financial statements and issue a new auditor’s report when issue of the
financial statements for the following period is imminent, provided appropriate disclosures are to be made in
such statements.

6.0 Offering of Securities to the Public

In cases involving the offering of securities to the public, the auditor should consider any legal and related
requirements applicable to the auditor in all jurisdictions in which the securities are being offered. For example,
the auditor may be required to carry out additional audit procedures to the date of the final offering document.
These procedures would ordinarily include carrying out audit procedures up to a date at or near the effective
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date of the final offering document and reading the offering document to assess whether the other information
in the offering document is consistent with the financial information with which the auditor is associated.
AUDITING

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