3G - Subsequent Events

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School

University of Illinois, Chicago *

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435

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Accounting

Date

Nov 24, 2024

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docx

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Uploaded by JusticeCapybaraMaster1521

3G – Subsequent Events Subsequent Events – Audit Objective - Evaluate whether events occurring between the F/S date and the auditor’s report date REQUIRED adjustment or disclosure o NOT accounting framework specific - Auditor’s report informs F/S users of the effect of event and transactions of which the auditor becomes aware up through the audit report date - Perform procedures as near audit report date as practicable Required Procedures - Obtain understanding of management procedures to ensure subsequent events are identified - Inquire of management and others about whether any subsequent events that might effect the F/S have occurred - Read minutes held after F/S date o Inquire about meetings where minutes NOT available - Read the most recently released interim F/S if any Type 1 Subsequent Events - Provide additional evidence about conditions existing at F/S date - Effect inherent estimates in the F/S - Require actual adjustment, as necessary - E.g., product warranty reserves, settlement of litigation in process Type 2 Subsequent Events - Conditions or events arising after F/S date - E.g., fire, flood, theft, business acquisition, bond issuance - Disclosure, but NO adjustment, to the F/S Example of Events NOT REQUIRED Subsequent Disclosure Events - Product changes - Management changes - Loss of customer - Strikes - Other events that normally would NOT result in a journal entry Subsequent Events Footnote - REQUIRES reporting entities to disclose date THROUGH which subsequent events have been evaluated and whether date is the date the F/S were issued or available for issue - REQUIRED regardless of whether entity recognizes or discloses a subsequent event in the F/S - Auditor’s report date CANNOT be earlier than the date of management’s subsequent events evaluation note o Same date of management representation letter

Subsequently Discovered Facts - Through audit report date o Perform audit procedures to evaluate all subsequent events that MAY REQUIRE adjustment of, or disclosure in, the F/S - AFTER audit report date, BEFORE report release o NOT REQUIRED to perform any audit procedures o However, MUST consider impact on F/S if become known - AFTER report release o Discuss with management and appropriate governance o Determine need for F/S revision and inquire management intent Question #1 Which of the following procedures is least likely to be performed before the balance sheet date? a) Testing of internal control over cash b) Confirmation of receivables c) Search for unrecorded liabilities d) Observation of inventory Question #2 An auditor SHOULD examine minutes of board of directors’ meetings: a) Through the date of his report b) Through the date of the financial statements c) On a test basis d) Only at the beginning of the audit Question #3 An auditor’s purpose in reviewing the renewal of a note payable shortly after the balance sheet date most likely is to obtain evidence concerning management’s assertions about: a) Existence or occurrence b) Presentation and disclosure c) Completeness d) Valuation or allocation Question #4 Zero Corp. suffered a loss that would have a material effect on its financial statements on an uncollectible trade account receivable due to a customer’s bankruptcy. This occurred suddenly due to a natural disaster 10 days after Zero’s balance sheet date, but one month before the issuance of the financial statements and the auditor’s report. Under these circumstances: a) The financial statements SHOULD be adjusted b) The event REQUIRES financial statement disclosure, but NO adjustment c) The auditor’s report SHOULD be qualified d) The auditor’s report SHOULD be adverse

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