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

Halden Co has a 31 March 20X6 year end. Which of the following events occurring in April 20X6 would normally be an adjusting event requiring the auditor to expect an adjustment to the financial statements?

The court settlement is an adjusting event because it provides evidence of a condition that existed at the reporting date, namely the obligation arising from the 20X5 incident. The fire, market fall and restructuring announcement arose after year end, so they are non-adjusting events, disclosed if material.

  1. AA fire destroying a warehouse on 20 April 20X6
  2. BA decline in the market value of investments caused by events after year end
  3. CSettlement of a court case on 10 April 20X6 for an amount different from the provision at 31 March, relating to an incident in 20X5Correct
  4. DThe announcement of a major restructuring plan on 25 April 20X6

Explanation

A court settlement confirming a condition that existed at the reporting date (the obligation from the 20X5 incident) is an adjusting event, so the provision should be revised. The fire, investment price decline and restructuring announcement arise from post year-end conditions and are non-adjusting, typically disclosed if material.

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