Three Categories of Subsequent Events and Auditor's Responsibilities

## SA 560: Subsequent Events

### Three Categories — The Core Framework

Auditor's General Responsibility:

• For Events: Consider only if they require adjustment or disclosure in FS
• For Facts A & B: Consider only if they would have impacted the Auditor's Report

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### Category 1: Events (FS Date → AR Date)

Audit Procedures:

• Understand management's process for identifying subsequent events
• Read minutes of management meetings held after FS date
• Read entity's latest interim financial statements
• If event identified, determine whether it is properly reflected in FS
• Request Written Representation confirming all events adjusted/disclosed

Eight Specific Enquiries to Management:

1. New commitments, borrowings, or guarantees

2. Sales or acquisitions of assets

3. New share/debenture issuances; merger or liquidation agreements

4. Assets appropriated by government or destroyed (fire, flood)

5. Developments regarding contingencies

6. Unusual accounting adjustments

7. Events relevant to measurement of estimates/provisions

8. Events relevant to recoverability of assets

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### Category 2: Facts A (After AR Date, Before FS Issued)

> Auditor has no obligation to perform procedures after the AR date — but must act if a relevant fact becomes known.

Steps if a fact becomes known:

1. Discuss with management

2. Determine whether FS need amendment

3. Inquire how management intends to address the matter

If management amends FS:

• Extend audit procedures to the new AR date
• Issue a new auditor's report

Dual Dating (where law permits restricting amendment to specific event):

• Add an additional date restricted to that amendment (e.g., '15 May, except Note 7 dated 20 May'), OR
• Issue new/amended report with Other Matter Paragraph (OMP) stating procedures on subsequent events are restricted to that amendment

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### Category 3: Facts B (After FS Issued)

> Again, no obligation to perform procedures — but must act if a relevant fact becomes known.

Steps if a fact becomes known:

1. Discuss with management

2. Determine whether FS need amendment

3. Inquire how management intends to address

If management amends FS (additional steps vs. Facts A):

• Perform necessary audit procedures on the amendment
• Review management's steps to inform recipients of previously issued FS
• Extend procedures to new AR date
• Issue new auditor's report
• Include Emphasis of Matter Paragraph (EMP) referring to a note explaining the reason for amendment

### Facts A vs Facts B — Quick Comparison