Subsequent Events (Part 3)


Legal proceedings

• Obtaining a copy of the court order or other correspondence confirming the company has been found liable to pay compensation to its customer.

• Test checking after-date cash to confirm payment to the customer.

• Ensuring a provision has been recognised as opposed to disclosure as a contingent liability to meet the requirements in IAS 37, Provisions, Contingent Liabilities and Contingent Assets.

• Ensuring the provision is reasonable in relation to the outcome of the court case.

• Obtaining written representation from management to confirm the treatment of the provision.

Loss of customer

• Discuss with management the reason for not adjusting the irrecoverable receivable.

• The auditors have already agreed this amount is immaterial to the financial statements, so this amount would be put on an ‘audit error schedule’. Provided this amount remains immaterial at the completion stage, both individually and when aggregated with other misstatements, the auditor can still express an unmodified opinion.

Financial statements amended after the date of the auditor’s report, but before the financial statements are issued.

Circumstances may arise when the auditor becomes aware of facts that may materially affect the financial statements and, in such situations, the auditor will consider whether the financial statements need amending. The auditor is required to discuss with management how they intend to deal with events that will require the financial statements to be amended after the auditors have signed their report, but before the financial statements are issued.

Where the financial statements are amended, the auditor is required to carry out necessary audit procedures in light of the circumstances giving rise to the amendment. The auditor will also be required to issue a new auditor’s report on the amended financial statements and, therefore, must extend their subsequent events testing up to the (expected) date of the new auditor’s report. The revised auditor’s report must not be dated any earlier than the date of the amended financial statements. In situations where management refuses to make amendments to the financial statements, the auditor must take all steps required to avoid reliance by third parties on the auditor’s report. The auditor should also consider the need to resign from the audit.


Subsequent events are a key examinable area in auditing papers and it is crucial that students have an understanding of the types of audit evidence that the auditor should obtain to confirm that the accounting and disclosure requirements (particularly in IAS 10) have been applied correctly within the financial statements.

Candidates who simply write ‘obtain a management representation’ cannot expect to pass a question on subsequent events because written representations, on their own, are not a substitute for alternative audit evidence. Where candidates have knowledge of IAS 10 through studying Paper F3, you should not be afraid to think about the accounting requirements in order to help you consider how you will obtain sufficient appropriate audit evidence to achieve the auditing objectives. However, sticking to the question requirement is vital. If you are asked about the types of procedure(s) you should perform in determining whether the accounting treatment has been correctly applied, this is exactly what you must do.

Candidates should take care not to digress into irrelevant areas by writing everything they know about IAS 10, and instead should just answer the question set by the examiner.

Steve Collings is assessor for Paper F8


(1) IAS 10, Events After the Reporting Date, Paragraph 3.