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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Completion and final review

Mallow Co's auditor is considering a post-year-end event: on 12 February 20X6 the directors announced a decision to close a division, a plan that was not in place or communicated at the 31 December 20X5 year end. The report date is 1 March 20X6. How should the auditor view this event?

It is a non-adjusting event, so the auditor should assess whether adequate disclosure appears in the notes. The closure decision and announcement happened after the year end, so no obligation existed at the reporting date and no provision should be made in the 20X5 financial statements.

  1. AAs an adjusting event, requiring a restructuring provision at 31 December 20X5
  2. BAs a non-adjusting event; the auditor should consider whether disclosure in the notes is adequateCorrect
  3. CAs an event that is irrelevant because it occurred after the period end
  4. DAs a going concern matter only, with no disclosure required

Explanation

The closure decision and announcement arose after the period end, so no obligation existed at 31 December 20X5; it is non-adjusting. The auditor checks that material non-adjusting events are disclosed. Providing at the year end would be wrong as no constructive obligation existed then.

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