Advanced Audit and Assurance (International) · Completion and final review

Subsequent Events (ISA 560): Auditor Duties and Procedures

Updated 11 October 2026 · Fact-checked

ISA 560 covers events after the period end. Before the report date, you perform procedures to find events needing adjustment or disclosure. After the report date but before issue, you act if you learn of a fact. After issue, you have no duty to enquire, but you must act if you learn of a relevant fact.

Understand Subsequent Events (ISA 560)

Financial statements cover a period, but the audit finishes weeks or months later. Things happen in that gap. A customer may go bankrupt, inventory may be damaged, or a court may decide a case. ISA 560 tells you what to do about these events.

The standard splits time into three periods. Period one runs from the period end to the date of the auditor's report. Period two runs from the report date to the date the financial statements are issued. Period three is after issue. Your duty is strongest in period one and weakest in period three.

In period one you must actively look for events. You design and perform procedures to obtain sufficient appropriate evidence that all events up to the report date needing adjustment or disclosure have been identified. Management applies IAS 10 to decide the treatment: adjusting events give evidence of conditions that existed at the period end, so the numbers change. Non-adjusting events relate to conditions arising after the period end, so you only check disclosure if they are material.

In period two the responsibility for informing you lies with management. You have no duty to perform further procedures, but if a fact becomes known to you that would have changed your report, you must discuss it with management and those charged with governance, and decide if the financial statements need amendment. After issue, you have no obligation to make enquiries. If you do learn of such a fact, you take the same steps and consider your legal and ethical position, which may include taking advice.

The exam tests whether you can classify an event, name the right procedures, and recommend the right action and opinion effect. Always tie your answer to the scenario figures and the entity's facts.

Key rules to remember

Three periods under ISA 560: Period end → report date (active duty) → issue date (act if you learn of a fact) → after issue (no duty to enquire; act if you learn of a fact); Name the period first. It decides what you must do.
Adjusting event test: Adjusting = evidence of a condition that existed at the period end; Examples: a customer's insolvency confirming a receivable was impaired at year end; settlement of a court case for a past event.
Non-adjusting event test: Non-adjusting = condition arose after the period end; disclose if material; Examples: a fire after year end, a major acquisition, a fall in market value of investments. No change to the numbers.
Modification rule: If management will not adjust a material adjusting event, or will not disclose a material non-adjusting event → qualified or adverse opinion (ISA 705); Qualified if material but not pervasive; adverse if material and pervasive.
Facts after the report date, before issue: Discuss with management and TCWG → if amended, extend procedures to the new report date and issue a new or dual-dated report; If management does not amend and you think it should, consider the options for preventing reliance on your report.

How to solve Subsequent Events (ISA 560) questions

Use this method for any subsequent events question, whether it asks for procedures, treatment, or reporting.

1Identify the period end, the report date and the issue date from the scenario. Place each event on the timeline.
2Classify each event as adjusting or non-adjusting. Ask whether the condition existed at the period end.
3Assess materiality using the figures given. Compare with overall materiality and state the effect on the financial statements.
4State the treatment: adjust the numbers, or disclose the nature of the event and an estimate of its financial effect.
5Name audit procedures that fit the scenario: board minutes, latest management accounts, legal letters, post-year-end cash receipts, inventory sales prices, and written representations.
6Say what you will do if management refuses: discuss with TCWG, then consider the opinion under ISA 705.
7If the event is after the report date, state the period and the steps: discuss, decide on amendment, new report or dual-dating, and legal advice if needed.
8Add a one-line conclusion linking to the audit opinion or to going concern if the event threatens it.

Quickest way: Timeline, classify, act

When to use it: Use this when you have limited time and the question lists several events to evaluate.

Draw a one-line timeline with period end, report date and issue date. Mark each event.
Write A or NA beside each event using the test: did the condition exist at year end?
Give the amount and compare with materiality in one short sentence.
Write the action in a fixed order: adjust or disclose, procedure, then opinion effect if refused.
Check whether any event raises going concern doubt. If so, add one line on ISA 570.

Common mistakes in Subsequent Events (ISA 560)

Classifying an event by what happened, not by when the condition arose.
Students treat any bad news after year end as adjusting.
Fix: Ask if the condition existed at the period end. A fire after year end is non-adjusting. A customer going bust over a debt that was already doubtful is adjusting.
Saying the auditor has no responsibility after the report date.
Students remember that procedures are only required up to the report date.
Fix: State the duty properly: no duty to enquire after the report date, but you must act if you learn of a fact that would have changed your report.
Listing procedures without tailoring them to the scenario.
Students memorise a generic list.
Fix: Link each procedure to the event. For a disputed receivable, name post-year-end cash receipts and customer correspondence.
Forgetting to say what happens if management refuses to adjust.
Students stop once they have classified the event.
Fix: Finish with the opinion effect. State qualified or adverse based on materiality and pervasiveness, and cite ISA 705.
Proposing an emphasis of matter paragraph in place of a required adjustment.
Students see it as a softer option.
Fix: Emphasis of matter does not replace correct accounting. If the numbers are wrong and material, the opinion is modified.
Ignoring professional skills marks.
Students write technical points only.
Fix: Show scepticism by questioning management's explanations. Be commercial by quantifying the effect. Be clear and structured in your communication.

Worked examples

Example 1

Year end is 31 March 20X6. The auditor's report is dated 20 June 20X6. On 10 May 20X6 a customer, Rao Ltd, went into liquidation. Rao owed $480,000 at 31 March, which is included in receivables of $6,200,000. No allowance was made. Overall materiality is $150,000. Explain the treatment and the audit actions.

Show the solution

Timeline: the event on 10 May falls between the period end and the report date. The auditor has an active duty.
Classification: the liquidation most likely confirms the customer's financial difficulty that existed at 31 March, so it is an adjusting event under IAS 10. You would first confirm that the customer was already in difficulty at the year end, for example through overdue balances and earlier correspondence.
Materiality: $480,000 is 3.2 times materiality of $150,000, so it is material. It is also 7.7% of receivables (480,000 ÷ 6,200,000 = 0.0774).
Treatment: management should write off or impair the debt to the amount expected to be recovered, which reduces receivables and profit. A liquidator's statement of expected dividend would help to measure the recoverable amount.
Procedures: read the liquidation notice, obtain the liquidator's report, review post-year-end receipts from Rao Ltd, check the ageing of the balance at year end, review board minutes and obtain a written representation.
If management refuses: discuss with those charged with governance. If the misstatement stays uncorrected, issue a qualified opinion (material but likely not pervasive), or adverse if the effect is pervasive. Here, pervasiveness is unlikely because the item affects one balance.

Answer: The event is adjusting and material. Management must impair the $480,000 receivable to its recoverable amount. If it refuses, a qualified opinion is appropriate under ISA 705 because the misstatement is material but not pervasive.

Example 2

Year end is 30 September 20X6. The auditor signed the report on 12 December 20X6. The financial statements were issued on 20 December 20X6. On 16 December, the auditor reads in the press that a regulator fined the client $2 million for an environmental breach that took place in August 20X6. The client has no provision and no disclosure. Materiality is $400,000. What should the auditor do?

Show the solution

Timeline: the fact became known after the report date but before issue, which is the second period. The auditor has no duty to search, but this fact is now known.
Classification: the breach happened in August, before the period end, so the fine is evidence of a condition that existed at year end. Treat it as adjusting, unless the facts show otherwise. If the fine was imposed only after year end, IAS 37 still requires a provision for a present obligation at the period end, so the analysis points to adjustment.
Materiality: $2 million is five times materiality of $400,000, so it is material.
Action: discuss with management and those charged with governance. Ask management to verify the facts and amend the financial statements.
If management amends: extend audit procedures to the date of the new report, review the revised provision, obtain updated representations, and issue a new report dated no earlier than the approval of the amended statements. Alternatively use dual dating for that amendment only.
If management will not amend: notify management and TCWG that you will take action to prevent reliance on your report. Consider legal advice on this step. Also consider the opinion effect if the statements are issued uncorrected.
Professional skills: question whether the breach has other consequences, such as further fines, remediation costs or legal exposure, which may affect disclosure and going concern.

Answer: The auditor must discuss the fine with management and TCWG, and require an amendment to provide for the $2 million. After amendment, the auditor extends procedures and issues a new or dual-dated report. If management refuses, the auditor seeks legal advice and acts to prevent reliance on the original report.

Exam tips

Always state the period (before report date, between report and issue, or after issue) before you give any advice. Examiners reward this structure.
Quantify every event against materiality using the scenario numbers. A ratio or multiple shows commercial acumen.
Tailor the procedures to the event. Generic lists score poorly.
Link to going concern when the event is large, such as the loss of a major customer or a covenant breach.
Finish with the effect on the auditor's report. Name the opinion type and the reason.

Practice questions from Completion and final review

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.

Subsequent Events (ISA 560): frequently asked questions

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

An adjusting event gives evidence of a condition that existed at the period end, so the figures are changed. A non-adjusting event relates to a condition that arose after the period end, so you disclose it if it is material. The auditor checks that management has treated each correctly.

What procedures does the auditor perform for subsequent events?

The auditor reviews management's procedures for identifying events, reads minutes of meetings held after the period end, and reads the latest interim financial information. The auditor also enquires about litigation and claims, and obtains written representations. Extra procedures depend on the scenario, such as reviewing post-year-end cash receipts.

Does the auditor have to look for events after the report date?

No. After the report date, you have no duty to perform procedures on the financial statements. But if you learn of a fact that may have changed your report, you must discuss it with management and TCWG and decide what action to take.

How do I answer a subsequent events question in AAA?

Place the event on the timeline, classify it, test it against materiality, and state the treatment. Then give tailored procedures and the effect on the auditor's report. Use the scenario figures and show scepticism about management's explanations.