The auditing standard on subsequent events provide the basic principles and procedures as to the auditor‘s responsibilities and deal with: i. Dating the auditor‘s report ii. Audit...

      

The auditing standard on subsequent events provide the basic principles and procedures as to the auditor‘s responsibilities and deal with:
i. Dating the auditor‘s report
ii. Audit procedures
iii. Events after the date of the audit report.

Required:
a) In the context of subsequent events, what is the significance of the data of the auditor‘s report?
b) Outline the audit procedures considered necessary between the balance sheet date and the date of the auditor‘s report.
c) Summarise the appropriate actions of the auditor regarding events after the date of the audit report.

  

Answers


Wilfred
a) You are required to discuss the significance of the date of the auditor‘s report in the context of subsequent events
The auditor should perform procedures designed to obtain sufficient appropriate audit evidence that all events up to the date of the auditor‘s report that may require disclosure in the financial statements have been identified. The auditor‘s responsibility extends to the date on which he signs his report and he must obtain reasonable assurance that the effect of all material subsequent events are either disclosed or accounted for in the financial statements. The date of the auditor‘s report is therefore important because it determines the period where the auditor is responsible to perform audit procedures in respect of post balance sheet events. After the date of the auditor‘s report the directors are responsible for informing the auditor of any post balance sheet events that may require to be considered.

b) The audit procedures considered necessary between the balance sheet date and the date of the auditor?s report
- Reviewing procedures management has established to ensure that subsequent events are identified and inquiring whether any such events have occurred which might affect the financial statements being reported on;
- Reading minutes of the meetings of the board of directors and audit committees held after the end of the financial period. By reading such minutes the auditor is able to identify any material subsequent events that might have occurred since this would ordinarily be discussed at these meetings;
- Review the entity‘s latest available interim financial statements and other reports such as budgets, cash flow forecasts. By reading such interim financial statements the auditor is able to identify any subsequent events;
- Inquiring from the entity‘s lawyers on litigation and legal claims against the company. This will provide further details on any developments on such litigations;
- Inquiring from management whether any subsequent events have occurred which might
affect the financial statements

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

c) Auditors actions regarding events after the date of the audit report
The auditor does not have any responsibility to perform procedures or make any inquiry regarding the financial statements after he has issued his audit report. During this period from the date of the auditor‘s report to the date when financial statements are issued to the directors of the company, the responsibility to inform the auditor of facts, which may affect the financial statements, rests with management. When after the date of the of the auditor‘s report but before the financial statements
are issued to the shareholders, the auditor becomes aware of facts which may materially affect the financial statements, the auditor should consider whether the financial statements need to be amended. He should then discuss the matter with management and should take appropriate action depending on the circumstances. If management amends the financial statements to reflect the effect of the subsequent event, the auditor should carry out the necessary procedures and report on the amended financial statements. When 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 amend his report and express a qualified opinion or adverse opinion as appropriate.
Where the auditor‘s report has been released to the entity he should notify the directors not to issue the financial statements and the auditor‘s report to the shareholders and other third parties. If the financial statements are subsequently released, the auditor should take action to prevent reliance on the auditor‘s report.

Wilfykil answered the question on February 21, 2019 at 09:07


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