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CA Intermediate · Auditing and Ethics · Completion and Review

Auditors of Banyan Retail Ltd signed their report on 18 May. The board approved the financial statements on 18 May, and they were issued on 25 May. On 12 June, after issue, the auditor learns that a major debtor, whose balance was outstanding at the balance sheet date, went insolvent on 30 April due to conditions that existed at the balance sheet date. This was unknown at the report date. What should the auditor do under SA 560?

The auditor should discuss the matter with management to decide whether the financial statements need amendment, and if they are amended, perform the necessary procedures and issue a new or amended report. SA 560 imposes this duty for facts that existed at the report date and become known after issue.

  1. ATake no action because the financial statements were already issued
  2. BDiscuss with management whether the financial statements need amendment, and if they are amended, perform necessary procedures and issue a new or amended reportCorrect
  3. CResign from the audit at once and inform the Registrar of Companies
  4. DRecord the matter only in the audit working papers for the next year

Explanation

SA 560 requires the auditor, on becoming aware after issue of a fact that existed at the report date and might have caused an amended report, to discuss it with management, decide whether amendment is needed, and ask how management will address it. If management amends, the auditor carries out necessary procedures and provides a new or amended report. Waiting until next year is wrong because the duty applies now.

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