Microlesson · 5-min read

SA 560 – Subsequent Events

## SA 560: Subsequent Events

### Definition

Subsequent events are events or facts falling into two time buckets:

Events occurring between the date of Financial Statements (FS) and the date of Auditor's Report (AR)
Facts becoming known to the auditor after the date of the AR

Financial reporting frameworks recognise two types of such events:

Type	Nature	Treatment
Adjusting	Evidence of conditions existing at FS date	Adjust the FS
Non-adjusting	Evidence of conditions arising after FS date	Disclose in FS

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### Auditor's Objectives

1. Obtain sufficient & appropriate audit evidence (S&A AE) that events between FS date and AR date requiring adjustment or disclosure are appropriately reflected.

2. Respond appropriately to facts becoming known after AR date that, had they been known, may have caused the auditor to amend the report.

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### Case I — Events Between FS Date and AR Date

> Auditor has an active, positive obligation to detect these events.

#### Audit Procedures

Understand management's procedures for identifying subsequent events.
Inquire with management & Those Charged With Governance (TCWG) about:
New commitments, borrowings, guarantees
Sale or acquisition of assets
Assets appropriated by government or destroyed
Unusual accounting adjustments
Developments regarding contingencies
Appropriateness of accounting policies used in FS
Read minutes of meetings of owners, management, TCWG held after FS date; if not yet available, inquire.
Read latest interim FS and budgets.

#### If Events Are Found

Determine whether each event is appropriately adjusted or disclosed in FS.

#### Written Representation (→ SA 580)

Request management (and TCWG where appropriate) to provide written representation confirming all subsequent events requiring adjustment/disclosure under the applicable framework have been addressed.

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### Case II — Facts Known After AR Date but Before FS Are Issued

> Auditor has no obligation to perform further procedures, but must react if a material matter comes to attention.

#### Auditor's Steps

1. Discuss with management (and TCWG where appropriate).

2. Determine whether FS need amendment.

3. Inquire how management intends to address the matter.

#### Management Response Matrix

Management Action	Audit Report Not Yet Provided	Audit Report Already Provided
Amends FS	Perform audit procedures; obtain S&A AE on amended portions	Same
Does NOT amend FS	Modify opinion as per SA 705	Notify management & TCWG not to issue FS to third parties; if FS are nevertheless issued without amendment → take appropriate action to prevent reliance on the AR

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### Case III — Facts Known After FS Have Been Issued

> Auditor has NO obligation to perform any audit procedures, but must react if a material fact surfaces.

#### Auditor's Steps

1. Discuss with management and TCWG.

2. Determine whether FS need amendment.

3. Inquire how management intends to address the matter.

#### Management Response Matrix

Management Action	Auditor's Response
Amends FS	1. Carry out audit procedures on amendments<br>2. Inform already-issued users of FS about the situation<br>3. Obtain amended FS<br>4. Issue a new audit report<br>5. Include reference in EMP / OMP as per SA 706
Does NOT take necessary steps	Take appropriate action to prevent reliance on the existing AR

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### Quick Comparison: Auditor's Obligation Across Cases

Case	Period	Obligation to Search?
I	FS date → AR date	Yes — active duty
II	AR date → before FS issued	No — reactive only
III	After FS issued	No — reactive only

Worked example

### Example 1

Case I Example — Adjusting Event:

FS date: 31 March. AR date: 25 May. On 10 April a major debtor (₹50 lakh) declares insolvency.

Analysis: The insolvency provides evidence of a condition (debtor's financial difficulty) existing at 31 March → adjusting event. Auditor, during Case I procedures, identifies this via inquiry with management. Auditor requires management to write down the receivable and obtain written representation (SA 580) confirming the adjustment has been made.

### Example 2

Case I Example — Non-Adjusting Event:

FS date: 31 March. AR date: 25 May. On 2 May the company's warehouse burns down (fire caused by a storm on 1 May).

Analysis: The fire arose after the FS date → non-adjusting event. No adjustment to asset values in current FS; however, disclosure is required in notes as a material subsequent event.

### Example 3

Case II Example:

Auditor signs AR on 20 May. FS are to be issued on 30 May. On 25 May, auditor discovers that a key supplier contract (undisclosed) was cancelled on 18 May, materially affecting going concern.

Auditor's action: Discuss with management; determine FS amendment needed. If management amends → perform procedures on amendment, obtain evidence. If management refuses to amend → notify management & TCWG not to issue FS to third parties; if FS are issued anyway → take appropriate steps to prevent reliance on AR.

### Example 4

Case III Example:

FS issued on 30 May. On 15 June, auditor reads in a newspaper that a ₹2 crore contingent liability (unrecorded) was crystallised on 1 April (before AR date).

Auditor's action: Discuss with management. Management amends → auditor performs procedures on amendment, informs existing users of FS, obtains amended FS, issues new audit report with EMP/OMP as per SA 706. Management refuses → auditor takes appropriate action to prevent reliance on the original AR.

⚠️ Common exam mistakes

Treating all three cases as having the same level of auditor obligation — only Case I carries an active duty to search; Cases II and III are reactive.
Forgetting to obtain Written Representation (SA 580) from management for Case I subsequent events.
Confusing 'adjusting' vs 'non-adjusting' events: adjusting events relate to conditions existing AT the FS date; non-adjusting events relate to conditions arising AFTER.
Assuming that once the AR is signed (Case II) the auditor can simply ignore new information — the auditor must still react if the matter would have caused amendment.
In Case III (after FS issued), forgetting the full checklist: new audit report + inform existing users + EMP/OMP reference under SA 706 — students often remember only 'new audit report'.
In Case II when management refuses to amend and the AR has already been provided, writing 'modify opinion' (that applies only when AR not yet provided); after the AR is issued the action is to prevent reliance, not modify.
Mixing up SA 705 (Modifications to Opinion) and SA 706 (Emphasis of Matter / Other Matter) in the context of subsequent events responses.

Bare-Act text SA 560 – Subsequent Events (Objectives and Requirements) · SA 560 · click to expand

Subsequent Events: Events occurring between the date of the financial statements and the date of the auditor's report, and facts that become known to the auditor after the date of the auditor's report. The auditor shall perform audit procedures designed to obtain sufficient and appropriate audit evidence that all events occurring between the date of the financial statements and the date of the auditor's report that require adjustment of, or disclosure in, the financial statements have been identified. The auditor has no obligation to perform any audit procedures regarding the financial statements after the date of the auditor's report. However, when a fact becomes known to the auditor after the date of the auditor's report that, had it been known to the auditor at that date, may have caused the auditor to amend the auditor's report, the auditor shall discuss the matter with management and, where appropriate, those charged with governance, and determine whether the financial statements need amendment.

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