HOW TO AUDIT SUBSEQUENT EVENTS: ACCA AAA syllabus area E // Audit procedures for subsequent events
Updated: February 24, 2025
Summary
The video explains the crucial role of auditors in assessing subsequent events that occur after a client's financial statement year-end. It differentiates between adjusting and non-adjusting events, using examples like equity financing and mergers. Auditors follow practical procedures like management inquiries and internet searches to identify these events, relying on professional judgment to decide if adjustments or disclosures are needed in financial statements. The implications of subsequent events on the auditor's report, such as qualifications and disclosure requirements, are also discussed.
Auditor's Responsibility for Subsequent Events
Explaining the responsibility of auditors for subsequent events that occur after the year end of a client's financial statements.
Examples of Subsequent Events
Providing examples of subsequent events such as equity financing, business segment closures, and mergers and acquisitions.
Adjusting vs. Non-Adjusting Events
Discussing the difference between adjusting and non-adjusting events, and when auditors need to adjust financial statements based on subsequent events.
Identifying Subsequent Events
Explaining practical procedures to identify subsequent events including inquiries with management, reviewing board minutes, and conducting internet searches.
Evaluation of Subsequent Events
Detailing the evaluation process for subsequent events, requiring professional judgment to determine if adjustments or disclosures are necessary in financial statements.
Impact on Auditor's Report
Discussing the implications of subsequent events on the auditor's report, including qualifications, emphasis of matter paragraphs, and disclosure requirements.
FAQ
Q: What are subsequent events in relation to auditing financial statements?
A: Subsequent events refer to events that occur after the year end of a client's financial statements but before the financial statements are issued.
Q: Can you provide examples of subsequent events in the context of auditing?
A: Examples of subsequent events include equity financing, business segment closures, mergers and acquisitions, natural disasters, or changes in regulations that significantly impact the financial statements.
Q: What is the difference between adjusting and non-adjusting events in auditing?
A: Adjusting events are those that provide evidence of conditions existing at the year end, and financial statements need to be adjusted accordingly. Non-adjusting events are those that provide evidence of conditions arising after the year end and may require disclosure in the financial statements.
Q: When do auditors need to adjust financial statements based on subsequent events?
A: Auditors need to adjust financial statements when subsequent events provide additional information about conditions that existed at the year end date and impact the financial statements significantly.
Q: What practical procedures can auditors use to identify subsequent events?
A: Auditors can identify subsequent events by making inquiries with management, reviewing board minutes, conducting internet searches, and analyzing any new information that may affect the financial statements.
Q: How do auditors evaluate subsequent events and determine if adjustments or disclosures are necessary?
A: Auditors evaluate subsequent events using professional judgment to assess the impact on the financial statements, determining if adjustments are needed to properly reflect the financial position of the company or if disclosures are required to inform users of the financial statements.
Q: What are the implications of subsequent events on the auditor's report?
A: Subsequent events can lead to qualifications in the auditor's report if they are material and impact the financial statements, emphasis of matter paragraphs may be included to draw attention to significant events, and additional disclosure requirements may be necessary to provide a complete picture of the company's financial position.
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