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

Kestrel Ltd has a 31 December 20X5 year end. The auditor signed the audit report on 12 March 20X6. On 20 March 20X6, before the financial statements were issued, the auditor learns that a major customer, whose receivable was included at full value at the year end, went into liquidation on 5 March 20X6 because of conditions that existed at the year end. Which of the following is the auditor's FIRST required action under ISA 560?

The auditor should first discuss the matter with management and those charged with governance and decide whether the financial statements need amending. ISA 560 requires this when a fact emerges after the report date but before issue, and the auditor cannot simply leave the signed report unchanged.

  1. AIssue the audit report unchanged because it is already signed
  2. BDiscuss the matter with management and those charged with governance and determine whether the financial statements need amendmentCorrect
  3. CInclude an Emphasis of Matter paragraph without discussing it with management
  4. DWithdraw from the engagement immediately and notify the regulator

Explanation

Under ISA 560, facts becoming known after the report date but before the financial statements are issued require the auditor to discuss the matter with management, and determine whether amendment is needed. Leaving the report unchanged ignores a fact that may have existed at the reporting date. Withdrawal is not the first step.

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