ACCA Applied Skills · Audit and Assurance

Subsequent events: formula sheet

Full chapter guide

Key formulas

Period covered: Reporting date → date financial statements are authorised for issue; Events outside this window are not IAS 10 events. Events after authorisation are handled differently.
Adjusting event: Evidence of conditions existing at the reporting date → adjust recognised amounts; Examples: customer insolvency confirming a receivable was impaired, court case settled for a different amount than provided.
Non-adjusting event: Condition arose after the reporting date → no adjustment; disclose if material; Disclose the nature of the event and an estimate of its financial effect, or a statement that no estimate can be made.
Dividends: Dividends on equity shares declared after the reporting date → not a liability at the reporting date; Disclose in the notes. Do not accrue.
Going concern exception: Management decides to liquidate or cease trading after the period → do not use going concern basis; Applies even if the event occurs after the year end.
Period 1 duty (active): Period end → date of auditor's report: auditor must perform procedures to identify events; Obtain sufficient appropriate evidence that events needing adjustment or disclosure are reflected in the financial statements.
Period 2 duty (passive): Date of auditor's report → date financial statements issued: no duty to search; Management should inform the auditor of facts that come to its attention. If the auditor becomes aware of a fact that might have caused a different report, discuss with management and take action.
Period 3 duty (passive): After financial statements issued: no duty to search; If aware of a fact that existed at the report date and might have changed the report, discuss with management and take appropriate action.
Adjusting event: Evidence of conditions existing at the period end → adjust the figures; Example: insolvency of a customer that confirms an irrecoverable receivable.
Non-adjusting event: Condition arising after the period end → disclose if material, do not adjust; Disclose the nature of the event and an estimate of its financial effect.

Quick revision

Subsequent events happen between the reporting date and the date the financial statements are authorised for issue.
Adjusting events give evidence of conditions that existed at the reporting date, so the figures are changed.
Non-adjusting events relate to conditions that arose after the reporting date, so they are disclosed if material, not adjusted.
Customer insolvency confirming a year-end debt and inventory sold below cost after year end are typical adjusting events.
Share issues, acquisitions and fires or floods after year end are typical non-adjusting events.
Dividends declared after the reporting date are not recognised as a liability at year end.
If going concern is no longer appropriate after the year end, the financial statements must not be prepared on a going concern basis.
Up to the report date the auditor must actively perform procedures to find events needing adjustment or disclosure.
After the report date the auditor has no duty to search, but must act on facts that come to their attention.
If a fact emerges before issue, discuss with management and amend the financial statements, then give a new report.
If management will not amend and the statements are unissued, the auditor modifies the opinion; if issued, the auditor seeks to prevent reliance.
Always obtain a written representation that all subsequent events have been disclosed or adjusted.

Common mistakes

Treating every post year end event as adjusting because it is bad news. Fix: Ignore whether the news is good or bad. Ask only whether the condition existed at the reporting date.
Adjusting for a fall in the market value of investments after the year end. Fix: A fall in market value after the period reflects conditions arising after it. It is non-adjusting. Disclose if material.
Saying the auditor must search for events after the date of the auditor's report. Fix: Remember that the active duty stops at the report date. After that the duty is only to respond if you become aware of a fact.
Classifying an event by when it happened rather than by the condition it reflects. Fix: Ask whether the event gives evidence about a condition existing at the year end. A customer's insolvency usually does. A post year-end fall in share prices usually does not.

Exam tips

Always write the two dates in your answer. Markers reward you for showing the event falls within the IAS 10 window.
Give the reason for your classification in one sentence. The reason earns the mark, not just the label.
For non-adjusting events, state the disclosure: nature of the event and estimated financial effect. Do not stop at 'do not adjust'.
In audit scenarios, link the event to the auditor's action: ask management, read board minutes, review post year end results, and consider the effect on the audit opinion if it is not dealt with properly.
Watch for going concern clues such as loss of a major customer, bank withdrawing facilities or a decision to wind up.
Always state the period and whether the duty is active or passive. This is an easy mark that many students miss.
Tie each procedure to the scenario facts. Examiners reward specific answers, such as reviewing post year-end receipts for the named customer.
For classification questions, give your reason in one short sentence: the condition did or did not exist at the year end.