Subsequent Event/Post Balance Sheet Event

What is this event? A party that you are going to? Nono, this is the exam that you are going to!

What is this event referring to? Event = Business Transaction!

This is the business transaction that is related to a certain period which is the Balance sheet dat.

So there is two very important thing that you should take note here. Balance sheet date and Event.

Balance sheet date mean the reporting period that the Company is referring to: for example your reporting period is between 1 January 2008 to 31^st December 2008.

Subsequent event mean transaction that happen after the reporting period, namely after 31^st December 2008.

So as an auditor what should you look for?

The primary responsibility to deal with Subsequent event is not the responsibility of Auditor but Director. However auditor will always carry out their audit after reporting period therefore during their audit the will need to take it into the audit program.

There are 2 types of subsequent event namely adjusting event and non adjusting event.

Adjusting event is the event that is related to the reporting period; Non adjusting event is the event that not related to the reporting period

Generally, for adjusting event you need to adjust to the reporting period and non adjusting event you will need to disclose if it is material.

Auditor need to aware of 2 main aspects

First what are the audit procedures for Subsequent event?

Secondly what are the auditor responsibilities at different stages?

Summary of Procedures:

Procedure normally integrated as part of verification of year end balance

1. Inquiries of management
   
2. Correspondence with solicitor
   
3. Review internal statement prepared subsequent to balance sheet date
   
4. Review records prepared subsequent to the balance sheet date
   
5. Examine minutes subsequent to balance sheet date
   
6. Obtain a letter of representation
   

Auditor will not have the primary responsibility however since this will b e part of their Audit work therefore they would have to report on what they have gathered during their audit procedures

Therefore before issuing of audit report auditor will have the responsibilities to select sample and test for material subsequent events

Subsequent to that, and before issuance of audit report, they will only take a passive move which they will have to depend on the Director to report/inform them on any subsequent events.

If it is before the issuance of Finacial statement, Auditor will still have the chance to reissue their Audit report should there be any changes in the Financial Statements.

If it is before the AGM and after issuance of FS then Auditor will only be able to report the impact during the AGM

Note: the above is just a brief explanation and the objective is to help you to understand the basic concept of the topic. Please refer to the handout for more details. Should you required further information, please do not hesitate to contact me by leaving your comment or email me.