ACCA Applied Skills · Audit and Assurance

Subsequent Events for ACCA Audit and Assurance

Subsequent events are events between the reporting date and the date the financial statements are authorised, plus facts found later. IAS 10 splits them into adjusting and non-adjusting. ISA 560 tells the auditor what procedures to run and what to do if a fact emerges after the report date.

What this chapter covers

This chapter covers what happens after the year end but before and after the audit report is signed. It joins two sources. IAS 10 Events after the Reporting Period gives the accounting rules. ISA 560 Subsequent Events gives the audit duties.

The chapter has three time periods. The first runs from the reporting date to the date of the auditor's report. The second runs from the report date to the date the financial statements are issued. The third runs after issue. The auditor's duty is different in each period, and you must name the period before you answer.

It links to several other areas of the paper. Going concern often turns on a post year-end event such as the loss of a major customer. Audit evidence and completion procedures include subsequent events review, written representations and the final review. Audit reports depend on how management responds, because a refusal to adjust can lead to a modified opinion or an emphasis of matter. It also uses your Financial Reporting knowledge of provisions, inventory and receivables.

Subsequent events are a reliable source of marks in Section A and B objective test cases, where you must classify an event as adjusting or non-adjusting, or choose the right auditor response. They also appear in Section B constructed response questions, as part of completion, going concern or reporting scenarios. The rules are short and logical, so effort here pays back quickly. Objective questions are all or nothing, so precise classification matters.

Subsequent events: topics in the order to study them

1Subsequent Events under IAS 10Start with the accounting rules. You cannot audit an event until you can classify it as adjusting or non-adjusting.
2Auditor Responsibilities for Subsequent Events (ISA 560)Next learn the auditor's duty and procedures for events up to the report date, which builds on the IAS 10 classification.
3Facts Discovered After the Report DateThis is the harder part. It needs the first two topics, and it splits into before and after the financial statements are issued.
4Subsequent Events Reporting Implications and Exam QuestionsFinish by tying it all to the audit report and practising exam-style questions, which tests everything above.

How to prepare Subsequent events

Aim to learn the rules as a small decision tree, then drill it with questions until your answers are automatic.

Learn the IAS 10 definition and the two categories. Write three examples of each from memory, such as a customer insolvency confirming a year-end receivable (adjusting) and a fire after the year end (non-adjusting).
Build a timeline on one page with the reporting date, report date, issue date and after issue. Mark the auditor's duty at each point.
List the ISA 560 procedures for the period up to the report date: enquire of management, review minutes, review latest interim figures, review budgets and cash flows, and obtain a written representation.
Practise the after-report-date rules. Ask whether management will amend, whether the statements are already issued, and what the auditor does if management refuses.
Link each outcome to the audit report, such as a modified opinion or an emphasis of matter or other matter paragraph.
Do mixed objective test questions, then write one Section B answer in a clear layout: identify the event, classify it, state the impact, state the audit response.
Review your errors and add each to a short list of traps for last-day revision.

Common mistakes in Subsequent events

Classifying an event by how serious it is rather than by when the condition arose.
Fix: Ask whether the condition existed at the reporting date. If yes, adjusting. If it arose afterwards, non-adjusting, however large.
Saying the auditor must search for events after the report date.
Fix: State the period first. Active procedures apply up to the report date only. Later, the auditor responds to facts that come to their attention.
Adjusting the financial statements for a non-adjusting event.
Fix: Disclose the nature of the event and an estimate of its financial effect, or a statement that no estimate can be made.
Forgetting going concern when an event destroys the business.
Fix: Check whether a post year-end event threatens going concern. It can override the adjusting and non-adjusting split.
Giving a vague audit response such as 'the auditor should report it'.
Fix: Give a sequence: discuss with management, consider amendment, then the effect on the report, such as a qualified or adverse opinion if management refuses.
Writing long theory in a Section B answer instead of applying it to the scenario.
Fix: Name the event, classify it with a reason, state the effect on the numbers or disclosure, then state the specific audit action.

Last-day revision: Subsequent events

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.

Subsequent events in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Subsequent events: frequently asked questions

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

Adjusting events give evidence of conditions that existed at the reporting date, so you change the amounts in the financial statements. Non-adjusting events concern conditions that arose after the reporting date, so you only disclose them if they are material.

What must the auditor do before signing the audit report?

The auditor must perform procedures to find events up to the report date that may need adjustment or disclosure. These include enquiries of management, reviewing minutes and recent management information, and obtaining a written representation.

What if the auditor finds a fact after the report date?

The auditor discusses it with management and decides whether the financial statements need amending. If they do and management amends, the auditor performs the needed procedures and issues a new report. If management refuses, the auditor takes action to prevent reliance on the report.

How is subsequent events tested in the exam?

It appears in objective test questions asking you to classify an event or choose the auditor's response. It also appears in constructed response questions, often alongside going concern or completion. Always state the period and give a clear reason.