Important definitions

Financial statement date – The latest date covered by the financial statement under consideration.

Financial statement approval date– The date on which financial statements were approved.

Date of audit report– The date the financial statement is audited or the auditor signs the audit report.

Date of the financial statement issued– The date the financial statement is available for third parties.

Subsequent events– The events taking place between the dates of the financial statement and the date of the auditor’s report. Additionally, the facts the auditor comes to know after the auditor’s report.

Objectives of ISA 560

The objective of ISA 560 is defined as below.

1. This ensures subsequent events requiring adjustment/disclosures have been appropriately recorded in the financial statement.
2. Respond appropriately to the facts known to the auditor after the audit report. Had the auditor known these facts at the audit report date, this might have caused the auditor to modify the report. 

Scope of ISA 560

ISA 560 deals with the auditor’s responsibilities regarding subsequent events.

Requirements of ISA 560

Following are the requirements of ISA 560.

Events between the financial statement date and the date of the audit report.

1. Plan and perform audit procedures to obtain sufficient and appropriate audit procedures to identify and account for required adjustments/disclosures related to subsequent events.
2. Understand procedures implemented by management to identify subsequent events.
3. Inquire management if they are aware of certain subsequent events.
4. Go through the meeting minutes after the audit report has been issued.
5. Go through interim financial statements to identify any subsequent events.

Written representation

The auditor is required to obtain written representation from management or those charged with governance that all subsequent events requiring adjustment or disclosure have been identified and appropriately accounted for in the financial statement.

The issuance date is between the auditor’s report date and the financial statement.

1. If the auditor had known certain facts before issuing the audited financial statement, they would have changed the audit report. In this case, certain steps are to be taken, like discussing the matter with management, determining if an amendment is needed, and asking management how they intend to address the matter.
2. If management agrees, the auditor will issue an amended report earlier than the amendment date. Additionally, the other matter paragraph and emphasis of the matter paragraph will define the procedures for the subsequent event, which are limited to amendments.

Facts are known to the auditor after the audit report is issued.

Auditors do not have an obligation after the audit report is issued. However, if it had been the fact that would have impacted the auditor’s report if they knew it on the audit date, in this case, the auditor shall discuss the event with management, determine if adjustments are needed, and inquire management how they intend to resolve the matter.

So, if management intends to amend the financial statement, the auditor shall do the following.

1. Carry audit procedures on the amendment.
2.  Review the steps management takes to ensure anyone receiving previously issued financial statements has been informed of the situation.
3. Issue a new amended report, Include other matters, and emphasize why the amendment and the new report were issued.
4. If management does not amend the report when required or does not inform the parties who previously received the audit report of the amendment, the auditor shall seek to prevent future reliance on the auditor’s report.

Conclusion

Subsequent events are those that occur after year end but before financial statements are issued to third-party users. They cover the facts the auditors learn after the date of the audit report. Depending on the nature of events there may be a need to record/disclose the events in business financial statement.