Audit and Assurance · Audit finalisation and the final review

Subsequent Events and ISA 560 Explained for AA

Updated 11 October 2026

Subsequent events are events between the reporting date and the date the financial statements are authorised for issue. Adjusting events show year-end conditions and change the numbers. Non-adjusting events arose after the year end and are disclosed if material. ISA 560 covers the auditor's duties up to the report date and for facts learned after it.

Understand Subsequent Events (ISA 560)

A set of financial statements shows the position at the reporting date. But the accounts are not finished that day. Time passes before they are authorised for issue. Things happen in that gap. A customer goes bankrupt. A fire destroys a warehouse. The auditor must consider whether these events affect the financial statements.

IAS 10 splits these events in two. It defines subsequent events as those between the reporting date and the date the financial statements are authorised for issue. Adjusting events give further evidence of conditions that existed at the reporting date. You change the amounts in the financial statements. A customer who owed money at the year end goes into liquidation soon after: this confirms the receivable was impaired at the year end. Non-adjusting events relate to conditions that arose after the reporting date. You do not change the amounts. You disclose the nature and estimated financial effect if the event is material. A fire after the year end is a good example.

ISA 560 tells the auditor what to do. Its scope is wider than the IAS 10 definition. It covers the auditor's responsibilities for events up to the date of the auditor's report, and for facts that become known after the report date, both before and after the financial statements are issued. The key is the timing. There are three periods. First, from the reporting date to the date of the auditor's report. Here the auditor must perform procedures to identify events that need adjustment or disclosure. Second, after the report date but before the financial statements are issued. Here the auditor has no duty to search, but must act if they learn of a fact that existed at the report date and might have changed the report. Third, after the financial statements are issued. Again there is no duty to search, but the auditor must act if they learn of a fact that existed at the report date and might have led to a different report. In both the second and third periods, the fact must have existed at the report date. Facts discovered after issue are not IAS 10 subsequent events, but the auditor must still deal with them.

The logic is simple. The auditor is responsible for the opinion given on the report date. Before that date, they must actively look. After it, the responsibility for the financial statements stays with management, so the auditor reacts only if told something.

Key rules to remember

Adjusting event (IAS 10): Evidence of a condition that existed at the reporting date → adjust the amounts; Typical examples: customer insolvency confirming a receivable loss, settlement of a court case that existed at the year end, sale of inventory below cost showing net realisable value was lower, discovery of fraud or errors that show the financial statements were incorrect.
Non-adjusting event (IAS 10): Condition arose after the reporting date → do not adjust; disclose nature and estimated financial effect if material; Typical examples: fire or flood after year end, major acquisition, share issue, large fall in market value of investments, and a restructuring announced after year end. The restructuring is non-adjusting only if the detailed plan was not announced or started by the year end, so no constructive obligation existed at the reporting date. If one did exist, a provision is needed at the year end.
Period 1: up to the date of the auditor's report: Auditor must perform procedures to identify events that may require adjustment or disclosure; Active duty. Procedures depend on risk assessment but commonly include enquiry and review of management's own procedures.
Period 2: after report date, before issue: No duty to perform procedures; if a fact that existed at the report date becomes known and might have caused a modified report or changed the opinion, discuss with management and take action; If management amends the financial statements, the auditor performs the necessary procedures and issues a new report. If management refuses and the report has not been released, the auditor modifies the opinion. If the financial statements are issued anyway, the auditor takes action to prevent reliance on the report.
Period 3: after issue of financial statements: No duty to perform procedures; if a relevant fact becomes known, discuss with management, consider whether the financial statements need amendment and, if they do, ask management to inform users and take appropriate action; The fact must have existed at the report date and might have led to a different report. If management amends the financial statements, the auditor extends the procedures to the date of the new report and issues a new report on the amended financial statements. The new report is dated no earlier than the date the amended financial statements are approved. If management does not act, the auditor notifies management and those charged with governance that the auditor will take action to prevent future reliance on the report. The auditor may need to consider legal advice.

How to solve Subsequent Events (ISA 560) questions

Use this method for any scenario asking whether an event needs adjustment, disclosure or auditor action.

1Find the key dates in the scenario: reporting date, date of the auditor's report, and date financial statements are issued.
2Place the event on the timeline. Ask: did it happen before or after each date?
3Decide if the event is adjusting or non-adjusting. Ask: did the underlying condition exist at the reporting date?
4State the accounting treatment. Adjusting: change the amounts. Non-adjusting: disclose if material. Check materiality using figures from the question.
5Identify which ISA 560 period applies. This sets whether the auditor must search or only react.
6List the audit procedures or actions that fit the period. Tie each one to the scenario, not a generic list.
7Conclude on the effect on the audit opinion if management refuses to adjust or disclose: a material misstatement leads to a qualified or adverse opinion.

Quickest way: Date, condition, period

When to use it: Use in Section A and Section B objective questions where you must classify an event or pick the auditor's duty quickly.

Circle the three dates in the scenario.
Ask one question: was the condition already there at the year end? Yes means adjusting. No means non-adjusting.
Match the date of the event to the period: before report date means active search; after means react only.
Pick the answer that names the right treatment and the right auditor action together.
Eliminate options that say the auditor must search after the report date.

Common mistakes in Subsequent Events (ISA 560)

Classifying by the date the event happened rather than the date the condition arose.
Every subsequent event happens after the year end, so students treat them all alike.
Fix: Ask whether the event confirms a condition that existed at the year end. A customer failing after year end because of earlier trading problems is adjusting.
Saying the auditor must carry out procedures right up to the date financial statements are issued.
Students mix up the report date and the issue date, and assume the IAS 10 window and the auditor's search duty end on the same date.
Fix: IAS 10 events run to the date the financial statements are authorised for issue. The auditor's active duty to search ends at the date of the auditor's report. After that the auditor only reacts to facts that become known, including facts found after issue, which are not IAS 10 events.
Adjusting the figures for a material non-adjusting event.
The event feels important, so students want to change the numbers.
Fix: Non-adjusting events are disclosed, not adjusted. Give the nature and an estimate of the financial effect, or state that an estimate cannot be made.
Listing generic audit procedures with no link to the scenario.
Students memorise lists such as reading minutes and enquiring of management.
Fix: Choose procedures that test the specific event, such as reviewing post year end cash receipts for a doubtful receivable, and say what each one proves.
Forgetting the effect on the audit report when management refuses to correct the financial statements.
Students stop after the accounting treatment.
Fix: If the misstatement is material, the opinion is modified. Use qualified if material but not pervasive, and adverse if material and pervasive.
Treating a dividend declared after the year end as a liability.
Students link dividends to the year they relate to.
Fix: Under IAS 10, dividends declared after the reporting date are not a liability at that date. Disclose them in the notes.

Worked examples

Example 1

Jasper Co has a 31 December year end. The auditor's report is dated 15 March. On 20 January, Jasper learned that a major customer, Orin Ltd, went into liquidation. Orin owed $400,000 at 31 December, which is material, and no allowance was made. On 5 February, a fire destroyed a factory with a carrying amount of $250,000, which is material. Classify each event, state the treatment and describe the audit work.

Show the solution

Dates: reporting date 31 December; report date 15 March. Both events fall in the first period, so the auditor must actively look for them.
Orin liquidation: the customer's financial difficulty most likely existed at the year end, and the debt was owed at that date. The liquidation provides evidence that the receivable was impaired at 31 December. This is an adjusting event.
Treatment: write off or provide against the $400,000 receivable, to the extent it is irrecoverable, and recognise the expense in the year.
Audit work for Orin: review the liquidator's correspondence, check post year end receipts, and look at the customer's credit history. Consider the amount likely to be recovered from the liquidator.
Fire: the fire happened after the reporting date. The factory existed in good condition at the year end. This is a non-adjusting event.
Treatment: no change to the $250,000 asset at 31 December. Disclose the nature of the event and the estimated financial effect, including any insurance recovery, if estimable.
Audit work for the fire: check insurance cover, review board minutes, and confirm the disclosure note is adequate. Consider going concern if the factory is critical.
If management refuses to adjust for Orin, the misstatement is material, so the auditor would modify the opinion.

Answer: The Orin liquidation is an adjusting event, so the receivable must be adjusted. The fire is non-adjusting, so it is disclosed only. The auditor must search for both because they arose before the report date. A refusal to adjust Orin would lead to a modified opinion.

Example 2

Kestrel Co has a 30 June year end. The auditor's report was signed on 10 September and the financial statements were issued on 20 September. On 14 September, the audit senior learns that a major lawsuit existing at 30 June was settled for $2 million, but only $300,000 was provided. The difference is material. What must the auditor do?

Show the solution

Dates: the event is on 14 September, after the report date of 10 September and before issue on 20 September. This is the second period.
Duty: the auditor has no obligation to search for events in this period. But the auditor has now learned a fact.
Classification: the lawsuit existed at 30 June, and the settlement gives evidence of the amount owed at that date. The fact therefore existed at the report date. It is an adjusting event, and the provision is understated by $1.7 million ($2,000,000 − $300,000).
Action: discuss the matter with management and those charged with governance. Assess whether the financial statements need amendment.
If management amends the financial statements, the auditor performs the necessary procedures, extends the subsequent events work to the date of the new report, and issues a new report. The new or amended report must be dated no earlier than the date the amended financial statements are approved.
If management does not amend and the report has not yet been released, the auditor modifies the opinion. The misstatement is material, so the opinion is qualified if the effect is not pervasive, or adverse if it is material and pervasive.
If the financial statements have already been issued despite the auditor's objection, the auditor takes steps to prevent reliance on the report, for example by notifying management and those charged with governance and, if needed, seeking legal advice.

Answer: The auditor has no duty to search after the report date, but must act on this fact. The provision is understated by $1.7 million. The auditor should discuss it with management and require amendment. If management amends, the auditor issues a new report dated no earlier than the date the amended financial statements are approved. If management refuses and the report has not been released, the auditor modifies the opinion (qualified or adverse). If the financial statements are issued anyway, the auditor takes steps to prevent reliance on the original report.

Exam tips

Draw a quick timeline of reporting date, report date and issue date. It makes the period obvious and takes ten seconds.
In Section C, split your answer into the accounting treatment and the audit procedures. Markers reward both, with a heading for each.
Give scenario-specific procedures. For a post year end customer failure, name the review of cash receipts after the year end and correspondence with the liquidator.
In objective questions, watch for options that wrongly say the auditor must search after the report date. Those are usually wrong.
State the opinion consequence at the end if management will not adjust or disclose a material item.

Subsequent Events (ISA 560): frequently asked questions

What is the difference between adjusting and non-adjusting events?

An adjusting event provides evidence of a condition that existed at the reporting date, so the amounts are changed. A non-adjusting event relates to a condition that arose after the reporting date, so the amounts stay the same. Material non-adjusting events are disclosed in the notes.

What are the auditor's responsibilities after the date of the auditor's report under ISA 560?

The auditor has no duty to perform procedures to look for events after the report date. But if a fact becomes known that might have changed the report, the auditor must discuss it with management and take appropriate action. This applies both before and after the financial statements are issued.

Which subsequent events audit procedures come up in AA?

Common procedures are reviewing minutes of meetings held after the year end, enquiring of management about new events, reviewing the latest management accounts and cash flow forecasts, and checking post year end cash receipts and payments. You should also review correspondence with lawyers and obtain a written representation on subsequent events.

Is the date of the auditor's report the same as the date financial statements are issued?

No. The report date is when the auditor signs the report after obtaining sufficient appropriate evidence. The issue date is when the financial statements and report are made available to third parties. They can be days or weeks apart, and ISA 560 treats them differently.