1 The time after end…
Financial statements convey important financial information to its users. One of the key characteristics of financial statements is that they cover a specific period of time i.e. all the incomes, expenses, changes in assets, liabilities and equity etc related to that period must be reported in the financial statements covering that period.
However, financial statements take time to finalize, publish and then making financial statements available to users including auditor’s report. And by the same time, new financial period already starts. As business continues and transactions taking place even during this time confusion arises on certain matters whether they should be reported in previous period i.e. the period for which financial statements are being finalized or not. These events that occurring subsequent to the end of financial period are called subsequent events.
ISA 560 deals with such subsequent events and explains the auditor’s objectives and responsibilities in this regard.
2 Subsequent events
Subsequent events are:
- Events occurring between:
- the date of the financial statements; and
- the date of the auditor’s report,
- And the facts that become known to the auditor after the date of the auditor’s report.
2.1 Understanding dates
Date of the financial statements – The date of the end of the latest period covered by the financial statements.
Date of approval of the financial statements – The date on which all the statements that comprise the financial statements, including the related notes, have been prepared and those with the recognized authority have asserted that they have taken responsibility for those financial statements.
Date of the auditor’s report – The date the auditor dates the report on the financial statements
Date the financial statements are issued – The date that the auditor’s report and audited financial statements are made available to third parties.
3 Auditor’s objectives
According ISA 560, auditor has to:
- Obtain sufficient appropriate audit evidence that all such events that fulfill the following conditions have been reflected in the financial statements:
- Events that occurred between the date of financial statements and the date of auditor’s report
- Events that required adjustments or disclosures in the financial statements
- Take appropriate actions after the date of auditor’s report towards the facts which if were known to auditor at the date of report may have caused the auditor to issue different audit report.
It must be noted that:
Auditor is not required to obtain evidence for all the events taking place between financial statements and auditor’s report date but for only those that required adjustment or disclosure in the financial statements.
Auditor is required to act even after auditor’s report has been issued if he acquires such information which if were available at the date of auditor’s report then auditor might have issued a different report then the report already issued.