## SA-560: Subsequent Events
### Key Dates
| Date | Meaning |
|---|---|
| Date of Financial Statements | End of the latest period covered by the FS |
| Date of Approval of FS | Date on which those with recognized authority assert they have taken responsibility for the FS |
| Date of Auditor's Report | Date the auditor signs the report per SA 700 |
| Date FS are Issued | Date audited FS and auditor's report are made available to third parties |
> Rule: Audited FS cannot be issued without an auditor's report. So the date FS are issued must be on or after the date of the auditor's report, and also on or after the date the report is provided to the entity.
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### Types of Subsequent Events
Type 1 — Adjusting Events: Provide evidence of conditions that existed at the date of the FS.
- Example: Insolvency declared by a major debtor after year-end.
- Example: Legal claim settled outside court at a reduced amount.
Type 2 — Non-Adjusting Events: Provide evidence of conditions that arose after the date of the FS.
- Example: Issue of new share capital.
- Example: Planned merger of the company.
- Example: Destruction of substantial inventories.
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### Identification of Subsequent Events — Procedures
1. Inquiry with management and TCWG.
2. Obtain Written Representations (WR).
3. Study minutes of Board Meetings.
4. Review interim reports.
5. Read the entity's interim financial statements.
6. Understand management's own procedures for identifying SEs.
### Specific Inquiries to Management
- New borrowings or guarantees provided?
- Assets acquired or sold?
- Developments regarding contingencies?
- Events affecting recoverability of assets?
- Events questioning appropriateness of accounting policies?
- Assets destroyed by natural calamity?
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### Audit Procedures Across Three Time Windows
#### Window 1: After Date of FS but Before Date of Auditor's Report
- Ensure subsequent events are identified.
- Consider Risk Assessment Procedures (RAP) while designing audit procedures.
- Ensure FS reflect subsequent events.
- Obtain WR that subsequent events have been adjusted/disclosed.
#### Window 2: Facts Known After Date of Auditor's Report but Before FS are Issued
- No obligation to perform further audit procedures after dating the report.
- BUT if a fact is known that would have caused the auditor to amend the report, auditor must:
1. Discuss with management and TCWG.
2. Determine how management addresses the matter in FS.
3. Assess whether FS need amendment.
If FS require amendment and management amends:
- Perform audit procedures on the amendment.
- Extend prior audit procedures to the date of the new audit report.
- Issue a new auditor's report (not dated earlier than the date of approval of FS).
If law permits restricting amendment to specific area:
- Auditor may apply dual dating (restrict AP solely to amendment); OR
- Issue a new/amended auditor's report.
- In either case, add an Emphasis of Matter (EOM) / Other Matter (OM) paragraph.
If management refuses to amend:
- If report not yet provided: Issue a modified report.
- If report already issued: Ask TCWG not to issue the FS without amendment; if FS are still issued, take appropriate action.
#### Window 3: Facts Known After Issue of Financial Statements
- Auditor has no obligation to perform further procedures.
- BUT if such a fact comes to light:
1. Discuss with management and TCWG.
2. Determine whether FS need amendment.
If management amends FS:
- Perform necessary audit procedures on the amendment.
- Review steps taken by management to inform persons who had custody of the original FS and report.
If law permits restricting amendment:
- Extend prior AP to new report date.
- Issue a new report (not dated earlier than approval of amended FS).
- Add EOM paragraph with extensive reasons for the amendment.
If management fails to notify persons with original FS, or refuses to amend:
- Notify management and TCWG to seek to prevent future reliance on the auditor's report.
- If management/TCWG fails, auditor takes appropriate actions to prevent reliance.