1. The purpose of this Standard on Auditing (SA) is to establish
standards on the auditor's responsibility regarding subsequent events. In
this SA, the term "subsequent events" is used to refer to significant events
occurring between the balance sheet date and the date of the auditor's
report. In the context of audit of a component, such as a branch or
division, of an entity “subsequent events” would refer to significant events
upto the date of the report of the auditor of that component of the entity.
2. The auditor should consider the effect of subsequent events on the
financial statements and on the auditor's report.
3. Accounting Standard (AS) 4, “Contingencies and Events Occurring
After the Balance Sheet Date”, issued by the Institute of Chartered
Accountants of India, deals with the treatment in financial statements of
events, both favourable and unfavourable, occurring between the balance
sheet date and the date on which the financial statements are approved by
the Board of Directors in the case of a company, and, by the corresponding
approving authority in the case of any other entity. AS 4 identifies two types
(a) those which provide further evidence of conditions that existed at the
balance sheet date; and
(b) those which are indicative of conditions that arose subsequent to the
balance sheet date.
4. The auditor should perform procedures designed to obtain
sufficient appropriate audit evidence that all events up to the date of the
auditor's report that may require adjustment of, or disclosure in, the
financial statements have been identified. These procedures are in
addition to routine procedures which may be applied to specified transactions
occurring after the balance sheet date to obtain audit evidence as to account
balances as at the balance sheet date, for example, the testing of inventory
cut-off and payments to creditors. The auditor is not, however, expected to
conduct a continuing review of all matters to which previously applied
procedures have provided satisfactory conclusions.
5. The procedures to identify events that may require adjustment of, or
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disclosure in, the financial statements would be performed as near as
practicable to the date of the auditor's report and ordinarily include the
Reviewing procedures that the management has established to ensure
that subsequent events are identified.
Reading minutes of the meetings of shareholders, the board of directors
and audit and executive committees held after the balance sheet date
and inquiring about matters discussed at meetings for which minutes are
not yet recorded.
Reading the entity's latest available interim financial statements and, as
considered necessary and appropriate, budgets, cash flow forecasts and
other related management reports.
Inquiring, or extending previous oral or written inquiries, of the entity's
lawyers concerning litigation and claims.
Inquiring of management as to whether any subsequent events have
occurred after the balance sheet date which might affect the financial
statements. Examples of inquiries of management on specific matters
The current status of items that were accounted for on the basis of
preliminary or inconclusive data.
Whether there have been any developments regarding risk areas
Whether any unusual accounting adjustments have been made or
Whether any events have occurred or are likely to occur which will
bring into question the appropriateness of accounting policies used
in the financial statements as would be the case, for example, if
such events call into question the validity of the going concern
6. When a component, such as a division or a branch, of an entity, has
already been audited by another auditor, the principal auditor would make
similar enquiries as set out in para 5 in respect of events, occurring between
the date of signing of the report of the auditor of the component of the entity
and signing of his report.
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SA 560 IV-352
7. When the auditor becomes aware of events which materially affect
the financial statements, the auditor should consider whether such
events are properly accounted for in the financial statements. When the
management does not account for such events that the auditor believes
should be accounted for, the auditor should express a qualified opinion
or an adverse opinion, as appropriate