Question

Describe what audit procedures you (the auditor) likely performed which resulted in your discovery of these subsequent events.

2. The Company was so caught up in its own success that it forgot to accrue for bonuses earned by senior management during 2019 but payable in February 2020. The aggregate bonus amount was $920,000.

Answer 1

This case is related to accrual concept, if bonuses accrued in the year 2019 are paid for in the year 2020, they are to be accounted for in the year 2019 only as per the GAAP's.

If not done so, profit for the year 2019 will be overstated and profit for the year 2020 will be understated.

The above is an event which declares bonus to the senior management and as the amount is also significant, it might require confirmation from board of directors, So reviewing the minutes of the meetings of board of directors might have been done to identify the above subsequent event. Further it may also be identified by reviewing the interim financial statements.