Audit and Assurance · Subsequent events

Auditor Responsibilities for Subsequent Events (ISA 560)

Updated 11 October 2026 · Fact-checked

Subsequent events are events between the period end and the date of the auditor's report, plus facts found afterwards. Under ISA 560 the auditor must obtain sufficient appropriate evidence that these events are properly reflected in the financial statements. You do this with specific review procedures, then respond to what you find.

Understand Auditor Responsibilities for Subsequent Events (ISA 560)

A company's year end is a snapshot. But the financial statements are not signed that day. Time passes while the accounts are prepared and audited. Things happen in that gap. Some give new evidence about conditions that already existed at the year end. Others are new conditions.

ISA 560 splits the timeline into three periods. Period 1 runs from the period end to the date of the auditor's report. Period 2 runs from the date of the auditor's report to the date the financial statements are issued. Period 3 is after the financial statements are issued. The auditor's duty differs in each.

In period 1 the auditor has an active duty. You must perform procedures to identify events that may need adjustment or disclosure, and get sufficient appropriate evidence that they are properly reflected. In period 2 the duty is passive. You have no duty to search, but if you become aware of a fact that might have changed your report, you must act. In period 3 the duty is also passive, with a similar response if you learn of such a fact.

The accounting treatment comes from IAS 10. Adjusting events give evidence of conditions at the period end, so the figures are changed. Examples are a customer going insolvent after the year end (confirming a receivable was impaired) or settlement of a court case for a different amount to the provision. Non-adjusting events concern conditions arising after the period end. They are disclosed if material, but not adjusted. Examples are a fire after the year end or a major acquisition.

Your job is to find these events, judge which type they are, and check management has dealt with them correctly. If it has not, you consider the effect on your opinion.

Key rules to remember

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.

How to solve Auditor Responsibilities for Subsequent Events (ISA 560) questions

Use this method for any question on subsequent events, whether it asks for procedures, classification or the auditor's response.

1Identify the dates in the question: period end, date of auditor's report and date financial statements are issued. Place each event on the timeline.
2Decide which of the three periods the event falls into. This sets whether the auditor's duty is active or passive.
3Classify the event as adjusting or non-adjusting. Ask: did the condition exist at the year end?
4Check materiality. Is the amount large enough to affect users' decisions?
5If asked for procedures, give specific ones tied to the scenario, not generic lists. Link each to what you are trying to find.
6Say what management should do: adjust, disclose, or do nothing. Compare to what it has actually done.
7State the auditor's response if the treatment is wrong or the event is unresolved: request correction, then consider a modified opinion or other reporting. In periods 2 and 3, discuss with management first.

Quickest way: Timeline, then classify, then respond

When to use it: Use for Section A and OT case questions, and as the skeleton for a short written answer.

Draw three boxes in your head: before report date, report date to issue date, after issue.
Box one means you must look. Boxes two and three mean you react only if you learn something.
Ask one question for classification: was the cause already there at the year end? Yes means adjusting. No means non-adjusting.
Pick the response: adjust, disclose, or consider modifying the opinion if management refuses.

Common mistakes in Auditor Responsibilities for Subsequent Events (ISA 560)

Saying the auditor must search for events after the date of the auditor's report.
Students blur the three periods and treat the whole post year-end time as one.
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.
Any event after the year end looks like a non-adjusting event.
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.
Listing generic audit procedures without linking them to the scenario.
Students memorise a list and copy it out.
Fix: Tie each procedure to the event given, such as reading board minutes about a legal claim or reviewing post year-end cash receipts for a doubtful receivable.
Forgetting disclosure for material non-adjusting events.
Students think no adjustment means no action.
Fix: State that the nature of the event and an estimate of its financial effect must be disclosed if material. Without that, the auditor considers a modified opinion.
Jumping straight to a qualified opinion without discussing with management.
Students want to show they know modification.
Fix: First discuss with management and ask for the correction or disclosure. Modify only if management refuses or the matter stays unresolved.
Ignoring the written representation point.
It seems a minor admin step.
Fix: Remember that the auditor requests written representations that all events after the period end needing adjustment or disclosure have been dealt with.

Worked examples

Example 1

You are auditing Kora Ltd for the year ended 31 December. The auditor's report is to be dated 20 March. List the audit procedures you would perform to identify subsequent events, and state the period of the auditor's duty.

Show the solution

The period is 31 December to 20 March, which is period 1: the period end to the date of the auditor's report. The duty is active.
Ask management about procedures it has to identify subsequent events and whether any have occurred.
Read minutes of members' and board meetings held after the year end and ask about matters discussed where minutes are not yet available.
Review the latest available interim financial information, budgets and cash flow forecasts after the year end.
Review post year-end cash receipts from customers to confirm year-end receivables are recoverable.
Check post year-end sales and purchases cut-off and inventory sales prices to test net realisable value.
Ask the entity's lawyers about litigation and claims, and review correspondence.
Check for new borrowings, guarantees, or loan covenant breaches after the year end.
Obtain a written representation from management that all subsequent events needing adjustment or disclosure have been dealt with.

Answer: Period 1, with an active duty. Procedures include enquiry of management, review of minutes, forecasts and interim information, post year-end cash receipts, inventory net realisable value, legal correspondence, and a written representation.

Example 2

The audit report on Zenith Ltd was signed on 15 April. Financial statements were issued on 30 April. On 22 April the finance director tells you that a major customer, owing a material balance at 31 December, went into liquidation on 10 April. Management has not adjusted the accounts. What should you do?

Show the solution

Place the event: the liquidation was on 10 April, before the report date, but you learnt of it on 22 April. The report was signed on 15 April and the financial statements not yet issued, so you are in period 2.
Classify: customer insolvency shortly after the year end normally indicates the receivable was already impaired at 31 December. This is an adjusting event, assuming the amount is material.
In period 2 the auditor has no duty to search, but you are now aware of a fact that might have caused a different report, so you must act.
Discuss the matter with management and those charged with governance.
Ask management to amend the financial statements to write off or provide against the receivable.
If management amends, perform the procedures needed on the amendment, extend your subsequent events work to the new date, and issue a new or amended report dated no earlier than the approval of the amended statements.
If management does not amend and the statements are not yet issued, modify the opinion (qualified or adverse depending on materiality and pervasiveness).
If the statements had been issued, you would notify management and those charged with governance not to issue to third parties until amended, and take steps to prevent reliance on the report.

Answer: This is a period 2 fact and an adjusting event. Discuss with management and request an amendment to the receivable. Then perform further procedures and re-date the report. If management refuses, modify the opinion.

Exam tips

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.
In written answers, finish with the auditor's response: discuss, request correction, then consider the opinion. Keep to that order.
In objective questions, watch the dates carefully. A single date can shift an event from period 1 to period 2.

Auditor Responsibilities for Subsequent Events (ISA 560) in other exams

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

Auditor Responsibilities for Subsequent Events (ISA 560): frequently asked questions

What are the three periods in ISA 560?

Period 1 is from the period end to the date of the auditor's report. Period 2 is from the report date to the date the financial statements are issued. Period 3 is after issue. The auditor must actively search in period 1 only.

What audit procedures test subsequent events?

Typical procedures are enquiries of management, reading board and shareholder minutes, reviewing recent management accounts and forecasts, checking post year-end cash receipts, and legal correspondence. You also obtain a written representation from management.

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

An adjusting event provides evidence of a condition that existed at the period end, so the figures are changed. A non-adjusting event relates to a condition arising after the period end, so it is disclosed if material but not adjusted. This treatment comes from IAS 10.

What if the auditor finds a fact after the financial statements are issued?

If the fact existed at the report date and might have changed the report, discuss it with management and those charged with governance. Decide whether the statements need amending and take appropriate action, including steps to stop reliance on the report if management does not act.