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

Zenith Components Ltd has a 31 December 20X5 year-end. The auditor signed the audit report on 10 March 20X6, and the financial statements were issued on 20 March 20X6. On 5 March 20X6, a major customer was declared insolvent, and the balance owed at the year-end was material. Under ISA 560, how should this event be classified by the auditor?

The insolvency occurred before the audit report date, so it is a subsequent event the auditor must consider under ISA 560. It confirms the receivable's condition at year-end, so it is adjusting. The auditor should perform procedures and request adjustment of the financial statements for the impairment.

  1. AAn adjusting event occurring between the period end and the date of the auditor's report, requiring the auditor to perform procedures and seek adjustmentCorrect
  2. BA fact discovered after the financial statements were issued, requiring the auditor to withdraw the report
  3. CA non-adjusting event requiring disclosure only, because it arose after the year-end
  4. DAn event outside ISA 560 because it occurred before the financial statements were issued

Explanation

The event occurred before the date of the auditor's report (10 March), so it falls in the first ISA 560 period: events between the period end and the report date. Customer insolvency provides evidence of conditions at the year-end, so it is an adjusting event. Treating it as non-adjusting ignores that the debt existed at the reporting date.

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