Subsequent Events

by | Sep 3, 2021 | Uncategorized

Subsequent Events (AS 4 | SA 560 | IND-AS 10)

KORAH AND KORAH, CHARTERED ACCOUNTANTS

 

AS 4 – Contingencies & Events Occurring After the BS Date
  • Events occurring after BS date (BS to FS signing)
  • Adjusting Events (impacting FS)
  • Non-Adjusting Events (just disclose in DR)
  • Non-Adjusting Events affecting GC (deemed as adjusting events)

 

SA 560 – Subsequent Events (SE)
  • SE (BS to FS signing & afterwards)
  • Audit Procedures for SE
  • Facts known after AR but before FS is issued
  • Facts known after FS is issued

 

A Better Understanding – AS 4 & SA 560
Insolvency of a customer which indicates a loss in trade receivables is an adjusting event

It confirms to a condition existing on BS date

AS 4 & SA 560
Destruction of a major production plant by fire is a non-adjusting event

Does not confirm to a condition existing on BS date

BASIC AUDIT PROCEDURES (SA 560)
  • To obtain SAAE on whether all events between BS date and date of Audit Report require adjustments (if AE) or just disclosures (if NAE)
    • Review the mgmt procedures
    • Make inquiries
    • Read minutes
    • Mgmt reports
    • Mgmt representation
  • Respond to facts that become known after the date of Audit Report
    • Extend the above
    • Inquire how mgmt intends to address the matter in FS

 

DEALING WITH COVID-19

Managements’s Considerations

  • They should exercise judgment in determining the impacts on FS from SE’s (adjusting events) in the wake of COVID-19
  • To issue a written representation that they have identified all events occurring between FS date and AR date which require adjustments/disclosures

 

Auditor’s Responsibilities
  • Obtaining an understanding of the SE’s and how it has been dealt with in FS.
  • Judgment needs to be applied to determine whether the conditions existed on the FS date (adjusting events) or not.
  • Ongoing and regular communication with TCWG – improve understanding of the changes that need responses and also to determine the audit procedures for SAAE.
Examples of Events & Conditions that May be Relevant in the Current Environment*

SECURED LOANS

New commitments and borrowings as a result of the pandemic

FIXED ASSETS

Recent or planned sales and acquisitions of assets as a result of the pandemic

DEBTORS

Expected credit loss provisioning – customers in USA/UK having already filed for liquidaton

GOVT. RELIEFS

Important to understand & determine the conditions and the dates attached

*May require adjustments to FS

REPORTING RESPONSIBILITIES

If the auditor is able to obtain SAAE about SE’s as required in SA 560, then he has 2 options:

  • If he considers that the SE’s identified require user’s attention, then uder KAM paragraph (Key Audit Matters)

OR

  • If it is not necessary to draw the user’s attention, then under EOM / OM paragraph (Emphasis of Matter/Other Matter)