Question

Ch.24 discussion- Topic: Audit procedures for Subsequent period; two-part discussion: 1) What is a "subsequent event" in audit process? 2) What procedures are performed during the subsequent period in an audit? In your logic, what are these procedures are intended for, as a financial reporting auditor?

Answer 1

Answer 1

A subsequent event is an event that occurs after a reporting period, but before the financial statements for that period have been issued or are available to be issued. Depending on the situation, such events may or may not require disclosure in an organization's financial statements.

The two types of subsequent events are:

• Additional information. An event provides additional information about conditions in existence as of the balance sheet date, including estimates used to prepare the financial statements for that period.

• New events. An event provides new information about conditions that did not exist as of the balance sheet date.

GAAP state that the financial statements should include the effects of all subsequent events that provide additional information about conditions in existence as of the balance sheet date. This rule requires that all entities evaluate subsequent events through the date when financial statements are available to be issued, while a public company should continue to do so through the date when the financial statements are actually filed with the Securities and Exchange Commission

Answer 2

There are certain procedures that are performed during the subsequent period in an audit such as  (a) the examination of data to assure that proper cutoffs have been made and (b) the examination of data which provide information to aid the auditor in his evaluation of the assets and liabilities as of the balance-sheet date.

In addition, the independent auditor perform other auditing procedures with respect to the period after the balance-sheet date for the purpose of ascertaining the occurrence of subsequent events that may require adjustment or disclosure essential to a fair presentation of the financial statements in conformity with generally accepted accounting principles. These procedures should be performed at or near the date of the auditor's report. The auditor generally :

1. Read the latest available interim financial statements; compare them with the financial statements being reported upon; and make any other comparisons considered appropriate in the circumstances. In order to make these procedures as meaningful as possible for the purpose expressed above, the auditor should inquire of officers and other executives having responsibility for financial and accounting matters as to whether the interim statements have been prepared on the same basis as that used for the statements under audit.
2. Inquire of and discuss with officers and other executives having responsibility for financial and accounting matters (limited where appropriate to major locations) as to:

   (i)	Whether any substantial contingent liabilities or commitments existed at the date of the balance sheet being reported on or at the date of inquiry.
   (ii)	Whether there was any significant change in the capital stock, long-term debt, or working capital to the date of inquiry.
   (iii)	The current status of items, in the financial statements being reported on, that were accounted for on the basis of tentative, preliminary, or inconclusive data.
   (iv)	Whether any unusual adjustments had been made during the period from the balance-sheet date to the date of inquiry.

The reason fore applying these procedures is well intended as there are some subsequent events that are material in nature and require to be reported or at least shown in the audit report so as to facilitate the shareholders or other externalities to get a proper image of the company status