Advanced Audit and Assurance (International) · Subsequent events and going concern

Subsequent Events under ISA 560 for AAA

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 after that date. Under ISA 560 you perform procedures to identify them, check that adjusting events are reflected and non-adjusting events are disclosed, and act if facts emerge after the report date.

Understand Subsequent Events under ISA 560

A financial statements period ends on one date, but the auditor signs the report weeks or months later. Things happen in that gap. A major customer may go bankrupt, a fire may destroy a warehouse, or a court may settle a claim. The auditor must consider whether these affect the financial statements.

IFRS (IAS 10) splits these events in two. Adjusting events give evidence of conditions that existed at the period end, so the numbers are changed. Non-adjusting events relate to conditions that arose after the period end, so the numbers stay the same, but disclosure is needed if they are material. ISA 560 does not define the accounting. It tells the auditor what to do about it.

ISA 560 deals with three time periods. First, events up to the date of the auditor's report: the auditor has an active duty to look for them. Second, facts that become known after the report date but before the financial statements are issued: the auditor has no duty to search, but must respond if they learn of something. Third, facts that become known after the financial statements are issued: again no duty to search, but a duty to respond if the auditor becomes aware of a fact that would have changed the report.

The key idea is that the auditor's responsibility is strongest before signing. After signing, the auditor reacts to information rather than hunting for it. In the exam, always identify which of the three periods the scenario sits in, because the required action differs.

Key rules to remember

Period 1: up to the report date: Perform procedures to identify all events up to the date of the auditor's report that may require adjustment or disclosure; This is an active duty. Procedures must be designed to cover the period from the period end to the report date, and updated as close to the report date as practicable.
Adjusting event: Evidence of conditions that existed at the reporting date → adjust the amounts; Examples: a customer bankruptcy confirming a receivable was impaired at year end, inventory sold below cost after year end, settlement of a court case that was ongoing at year end.
Non-adjusting event: Conditions arising after the reporting date → disclose if material, do not adjust; Examples: a fire after year end, a major acquisition, a share issue, a fall in the market value of investments after year end. Disclose nature and estimated financial effect.
Period 2: after report date, before issue: No duty to perform procedures. If a fact becomes known that might have caused a modified report, discuss with management and those charged with governance, and decide if the statements need amending; If management amends, extend procedures to the new date and give a new or amended report. That report must not be dated earlier than the date the amended financial statements are approved. If management does not amend and the auditor's report has not been released, the auditor modifies the opinion (qualified or adverse) in the report. If the report has already been provided to the entity, the auditor first notifies management and those charged with governance not to issue the statements to third parties before the amendments are made. If they are issued anyway, the auditor then takes action to prevent reliance on the report, and considers legal advice, as in Period 3.
Period 3: after the financial statements are issued: No duty to perform procedures. If a fact becomes known that would have caused a modified report, discuss with management and those charged with governance, and decide if the statements need amending. If management amends, extend procedures to the new report date, review the steps management has taken to inform recipients of the earlier statements, and issue a new report; Only if management does not take the necessary steps to inform recipients of the earlier statements does the auditor notify management and those charged with governance that they will seek to prevent future reliance on the report. If management still does not act, the auditor takes appropriate action to prevent reliance, and considers legal advice.
Written representations: Obtain a representation that all events after the period end requiring adjustment or disclosure have been dealt with; The representation date should be as close as possible to, but not after, the date of the auditor's report.

How to solve Subsequent Events under ISA 560 questions

Use this method for any subsequent events question, whether it asks for procedures, classification or auditor actions.

1Fix the dates. Note the period end, the date of the auditor's report and the date of issue. Decide which of the three periods the event falls into.
2Classify the event. Ask whether it gives more evidence about a condition at the period end (adjusting) or reflects something new after it (non-adjusting).
3State the financial reporting treatment. Adjusting: change the amounts. Non-adjusting: disclose nature and estimated effect, if material.
4Assess materiality. Compare the amount to the scenario's figures such as profit, total assets or the materiality level, and say whether it is material.
5Give the audit procedures or actions that fit the period. Before the report date, list active procedures. After it, describe the reactive steps: discuss with management, consider amendment, and respond.
6Consider the effect on the report. If management refuses to adjust a material item, a qualified or adverse opinion may be needed. If disclosure is missing, a qualified opinion on disclosure grounds may be needed. Say which one and why.
7Link to going concern where relevant. A major post year-end loss may cast doubt on going concern, so reassess it.
8Finish with a clear recommendation tied to the scenario, to earn professional skills marks.

Quickest way: Date, Class, Action

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

Write the three dates in the margin: period end, report date, issue date.
For each event, write A (adjusting) or N (non-adjusting) with a five-word reason, such as 'confirms year-end receivable problem'.
Add the treatment: adjust, or disclose if material.
Add one or two procedures for each event, such as inspect post year-end cash receipts or read board minutes.
Add the report consequence if management refuses to adjust or disclose.
Stop and check that every point is applied to the named company and amount.

Common mistakes in Subsequent Events under ISA 560

Classifying an event by when it happened rather than by what it tells you.
Students see the word 'after the year end' and assume every such event is non-adjusting.
Fix: Ask whether the event confirms a condition that existed at the year end. A customer going bankrupt after year end usually confirms an earlier problem, so it is adjusting.
Saying the auditor must search for facts after the report date.
Students blur the three periods together and apply the active duty to all of them.
Fix: State that the active duty ends at the date of the auditor's report. After that, the auditor responds to facts that become known but has no duty to look for them.
Listing procedures without applying them to the scenario.
Students memorise a generic list and write it out whatever the question says.
Fix: Choose procedures that fit the event. For a legal claim, review lawyers' letters. For a receivable, inspect cash received after the period end. Use the company's name and figures.
Forgetting the effect on the auditor's report.
Students focus on the accounting treatment and stop there.
Fix: Always finish with what happens to the opinion if management will not adjust or disclose, and whether the item is material.
Treating a material non-adjusting event as needing no action.
Students remember that non-adjusting events are not adjusted and forget the disclosure requirement.
Fix: Say that a material non-adjusting event must be disclosed with its nature and estimated financial effect. Missing disclosure can lead to a qualified opinion. An emphasis of matter may also be used if the disclosure is adequate and the matter is fundamental.
Ignoring going concern when the event is a major loss or loss of a key customer.
Students treat each topic in the syllabus as separate.
Fix: After classifying the event, ask whether it affects the entity's ability to continue. If so, link to going concern procedures and disclosure.

Worked examples

Example 1

You are the audit senior on Zenith Ltd, a manufacturer with a year end of 31 March 20X5. The auditor's report will be dated 20 June 20X5. On 10 May 20X5, Zenith's largest customer, owing $480,000 at 31 March, went into liquidation. Zenith's profit before tax is $2,000,000 and the receivable was not provided against. Discuss how this event should be treated and the audit work you would perform.

Show the solution

Dates: the event occurred on 10 May, after the period end but before the report date on 20 June, so ISA 560 requires the auditor to act.
Classification: a customer liquidation soon after the year end normally gives evidence that the customer was already in financial difficulty at 31 March. It is therefore an adjusting event.
Treatment: Zenith should write off or provide against the receivable, to the extent it is not expected to be recovered. Any recovery from the liquidator should be estimated.
Materiality: $480,000 is 24% of profit before tax ($480,000 ÷ $2,000,000), so it is clearly material.
Procedures: inspect the liquidation notice and any correspondence from the liquidator, review cash received after the year end for this customer, check the credit control file and last order dates, and discuss with management their assessment of recoverability.
Further procedures: assess whether the loss of the largest customer affects revenue forecasts and going concern, and obtain an updated written representation.
Report: if management refuses to adjust, the misstatement is material but not necessarily pervasive, so a qualified opinion (except for) is likely. It would be adverse only if the effect were pervasive.

Answer: This is an adjusting event. Zenith should provide against the $480,000 receivable. The auditor should inspect liquidation evidence and post year-end receipts, consider going concern, and issue a qualified opinion if management does not adjust.

Example 2

Halo Ltd has a year end of 30 September 20X5. The auditor's report was signed on 15 December 20X5 and the financial statements were issued on 20 December 20X5. On 5 January 20X6, the auditor learns that a fraud of $900,000 by the finance director, which occurred during the year, was not detected and was not reflected in the statements. Profit before tax is $3,500,000. Explain the auditor's responsibilities.

Show the solution

Period: the fact became known on 5 January, after the financial statements were issued, so this is the third ISA 560 period. The auditor had no duty to search for it, but must now respond.
Relevance: the fraud occurred during the audited year, so the fact existed at the date of the auditor's report but became known afterwards. That is why the ISA 560 paras 14-17 response applies. In substance it is a misstatement in the audited period that has been discovered late. $900,000 is about 26% of profit before tax ($900,000 ÷ $3,500,000), so it is material and would probably have led to a modified opinion.
Verify: the auditor should first confirm the fact is reliable, by discussing it with management and those charged with governance and obtaining evidence.
Management action: if management agrees to amend the statements, the auditor should extend procedures to the new date, review the steps taken to inform anyone who received the original statements, and give a new or amended report. A new or amended report is given only if the statements are amended.
If management does not act: where management has not taken the necessary steps to inform recipients, the auditor should notify management and those charged with governance that they will seek to prevent future reliance on the report (ISA 560 para 17). If management still does not act, the auditor takes appropriate action to prevent reliance and considers legal advice.
Separate matters: the points below are not ISA 560 requirements. They arise from ISA 240 on fraud and from ethics, and you should treat them separately from the subsequent events response.
Ethics and reporting: the auditor owes a duty of confidentiality, but this can be overridden where there is a legal duty or right to disclose. Take legal advice on confidentiality and on any statutory or regulatory duty to report to a regulator, and consult the firm's ethics partner, before disclosing to third parties.
Fraud and engagement: under ISA 240, consider the reliability of management representations, the implications of a fraud by the finance director for the rest of the audit, and whether the auditor should continue with the engagement.

Answer: The fraud relates to the audited period, so the fact existed at the report date but became known after issue, and ISA 560 paras 14-17 apply. The auditor had no duty to search but must respond. They should verify the fact and discuss it with management. A new or amended report is given only if management amends the statements, with procedures extended to the new date. If management does not take the necessary steps, the auditor should notify them that they will seek to prevent reliance on the report, and consider legal advice. Regulator reporting and whether to continue the engagement are separate ISA 240 and ethics considerations.

Exam tips

Always state the three dates before classifying anything. Markers look for evidence that you know which ISA 560 period applies.
Tie each procedure to the specific event. Generic lists score poorly in a scenario-based case study.
Show professional skills: judge materiality using the figures given, be sceptical about management's explanations, and finish with a clear recommendation.
Link the event to going concern and the auditor's report. A post year-end loss often affects both.
Use bullet points with short reasons. Each point should state the issue, the evidence and the implication.

Practice questions from Subsequent events and going concern

Subsequent Events under 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 under ISA 560: frequently asked questions

What is the difference between adjusting and non-adjusting events in an audit?

An adjusting event gives evidence of conditions that existed at the period end, so the financial statements are changed. A non-adjusting event relates to conditions arising after the period end, so amounts are not changed, but material items are disclosed. The auditor checks that management has classified and treated each one correctly.

What procedures does the auditor perform for subsequent events?

The auditor reviews management's procedures for identifying such 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, inspects post year-end cash receipts and sales, and obtains a written representation from management.

What must the auditor do if a fact is discovered after the date of the auditor's report?

There is no duty to search, but the auditor must respond if a fact becomes known that might have affected the report. The auditor discusses it with management and those charged with governance, and considers whether the statements need amending. If they are amended, the auditor performs the necessary procedures and gives a new report.

Does the auditor have to look for events after the financial statements are issued?

No. After the financial statements are issued, the auditor has no obligation to perform procedures on them. The auditor only acts if a fact comes to their attention that would have caused a modified report.