Completing the Audit Engagement

PSA
PSA 560 – Subsequent Events

Scope
- Some events that occur after the FS date can affect the FS
o Types of events that provide evidence of conditions that
 Existed at the fs date – adjusted
 Loss on receivables due to bankruptcy of customer that was
already dying at year end
 Settlement of lititgation that was differnet from estimate ate
year end
 Disposal of inventory or investment at less than book value
 Disposal of a losing segment below book value
 Arose after the fs date – disclosed
 Sale of bond or share capital issuance
 Purchase of business
 Settlement of lititgation when the event giving rise to the claim
occurred subsequent to bs date
 Loss of plant or inventories form fire or flood
 Loss on receivables from conditions after bsdate
 Decline in market alue of inventory as a consequence of govt
action barring sale of product
 Deline in mkt value of tradsec
- Effective Dec 15, 2009

Objectives
- Get s&a evidence that events that need adjustment or disclosure between fs date and
report date are properly reflected in the fs
- Nalaman ng auditor yung fact after the auditor’s report date. Pero if he found out about
it before or on the auditors report date, he could have amended his audit report. He
needs to respond to event like this.

Definitions
- FS date: date of end of latest period covered by fs. So pag, calendar year, fs date is dec
31(“for the year ended”)
- Fs approval date – all fs have been prepared and those w authority have taken
responsibility
- Auditor’s report date: date the auditor uses on his report
- Issuance of fs date: auditor’s report and audited fs are made available to 3rd parties
- Subsequent events – facts that occur between fs date and date of auditors report, but
are known to the auditor after the date of the auditors report
 Time when
FS DATE Auditors the auditor
Subsequent event report finds out
date about the se

Requirements
- Kailangan gumawa yung auditor ng procedure to gather s&a evidence that all the
subsequent events that need adjustment and disclosure have been identified. The
auditor doesn’t need to perform extra work in areas where they’ve found ok evidence
na
- Kailangan incorporate eyung risk assessment nila para malaman yung nature timing
and extent of the audit procedures
o Types of audit proceudrs to identify all subsequent events (depends on info
available)
 Understand the subsequent event identification procedures of the
management
 Ask mgt and tcwg if there are subsequent events
 New commitments borrowings guarantees
 Sales or acquisitions of assets have occurred or are planned
 Increases in capital or issuance of debt instruments like new share
issuances or debentures or an agreement o merge or liquidate
 Whether stuff have been destroyed due to fortuitious event
 Contingency developments
 Whether events have occurred that are relevant to the
easurement of estimates
 Events that are relevant to the recoverability of asets
 read the minutes form the meetings after the fs date and if there aren’t
any minutes yet ask the ppl in attendance about important matters they
discussed
 if sa public the auditor can read the official records of relevant
proceedings of the legislature and inquire about matters
addressed in the proceedings na wala pang official records
 rad the subsequent interim fs
 if wala look at available books and records including bank
statements
 read available budgets, cashflow forecasts related mgt report
 inquire or extend previous oral or written inquiries of the entity’s
legal counsel concerning litigations and claims
 consider whether writtenr epresnetations on the particular
subsequent events are necessary to support other audit evidence
 - after the procedures if they find anyt hign worth adjusting or disclosing they need to
check if those are aleready reflected in the fs

written representations
- auditor asks from the mgt and tcwg
- it has to be in accordance with psa 580
- the written representation should say that the events that need adjustement or
discloseure have been adjusted and disclosed.

facts known between auditors report date and fs issuance date

- yugn auditor he has dosnt have to perform audit procedures after the auditors report
date but then if after report ate and befoe issuance he finds out about something (the
mgt has the responsibility to tell them these things) that could have changed his report
had he known about it at the audiros report that, the auditor has to
o discuss the mgt and tcwg
o determing if mgt needs to amend the fs
 if mgt amends the fs, the auditor has to
 do audit procedures necessary for the circumstances
o review or testing acctg records and transactions
o cut off procedures for ar
 extend audit proedures to identify that all subsequent events
have been identified to the new auditors report date
 give new report on amended fs. This has to come after the date
of the approval of the new fs
 if mgt is allowed to restrict amendment of fs to only htat of the
subsequent event + those that approve are allowed to restrict approval
on the amendment alone, the auditor is allowed to limit its audit
procedures on subsequent events to the amendement alone
 auditor includes additional date restricted to that amendment
that say that audit procedures for subsequent events are only up
to the amendment indicated on the fs.
 Eom and om paragraph that says that the auidotrs procedures
are restricted solly to the amendement of the fs in the notes
o inquire how mgt intends to address the matter in the fs
- If client doesn’t have to issue ameded fs, then the auditor doesn t need to provide a
new or amended auditor sreport
- If auditor thinks that the entity needs to amend but doesn’t amend heres what the
auditors have to do:
o If the auditor hasn’t submitted the report to the entity, modify the report then
send to entity
o If its been submitted to the entity, the auditor has to
 Notify mgt and tcwg not to issue the fs to 3rd parties before amending
 If it still is isuued without the amendments then the audior has to take
appropriate action to prevent reliance on the auditors report
  The actions depend on the auditors legal rights
o For public entities – report to legislature or any relevant higher up in the
hierarchy

Facts that have become known to the auditor after the fs are issued
- yugn auditor he has dosnt have to perform audit procedures after the fs
issuance date but then if aafter issuance he finds out about something that
could have changed his report had he known about it at the audiros report that,
the auditor has to
o discuss with mgt and tcwg
o determine if fs needs amendment
 if mgt amends
 apply audit procedures necessary
 review steps undertaken by mgt to make sure that anyone
who has gotten hold of the previously issued fs and
auditors report are informed of the situation
o if the mgt doesn’t do any of these and doesn’t
amend if they have to amend (for public entities
report to the statutory body), the auditor needs to
tell tcwg that the auditor will prevent reliance on
the auditors report.
 If di pa rin gumagalaw mgt and tcwg, the
auidot has to do his own actions na to
prevent future reliance on the auditrs
report
 extend audit proceudres to the date of new auditors
report which has to come after the date of the approval fo
the new fs
 provide new auditors report on amended fs
o eom or om paragraph
 extensie discussion on the reason for
amending the previously issued fs and
auditors report

o inquire how the mgt intends to address the matter in the fs

Application
- if the fs are part of requirements for other doucments the auditor has to make
sure that the reqs passed reflect the right information that the auditor is
associated with.
- Definitions
o Date of approval
  Earlier between those w authority have recognized responsibility
and those w authority have recognized that all the statements
have been prepared
o Date of auditors report
 Cannot be earlier than approval of fs date
o Issue date
 Depends on regulatory environment
 Sometimes date of filing with regulatory authority
 Must be at or later than the date the auditrs report is
provided to the entity
 For public
 Issuance = fs date is allowed
PSA 570 – Going Concern

Going Concern
- an entity is viewed as continuing in business for the foreseeable future
- assets and liabilities will be realized through the normal course of business
- basis for general purpose fs
o special purpose fs like those prepared for taxes do not need to be
prepared on a going concern basis
- for public entities
o if it’s for profit and the govt reduces support/privatization/it lacks
funding/policies are made to reduce/affect the services it gives
Responsibilities of Management
- required or not to assess the entity’s ability to continue as a going concern, the
mgt is still responsible for its assessment because the going concern assumption
is a fundamental principle in preparing fs
- the going concern assumption is a function of mgt judgment which isaffected
by:
o uncertainty of an outcome of a future event
o size and complexity of the entity
 big companies can withstand adverse conditions
 small companies can respond to opportunities fast but lack
reserves. Creditors can cease support, + possible loss of
customers, suppliers and franchise
 nature of the business and degree to which it is affected by
external factors and how these can affect the outcome of events
o any judgment about the future which is based on the info available at the
time the judgment is made
 subsequent events may render presently reasonable judgments
inconsistent
- events that may cast doubt to the entity’s ability to continue as a going concern
o Financial

 Net liability or net current liability position. 


 Fixed-term borrowings approaching maturity without realistic

prospects of renewal or repayment; or excessive reliance on
short-term borrowings to finance long-term assets. 


 Indications of withdrawal of financial support by creditors. 


 Negative operating cash flows indicated by historical or

prospective financial 
 statements. 

  Adverse key financial ratios. 


 Substantial operating losses or significant deterioration in the

value of assets used to generate cash flows. 


 Arrears or discontinuance of dividends. 


 Inability to pay creditors on due dates. 


 Inability to comply with the terms of loan agreements. 


 Change from credit to cash-on-delivery transactions with

suppliers. 


 Inability to obtain financing for essential new product

development or other essential investments. 


o Operating

 Management intentions to liquidate the entity or to cease

operations. 


 Loss of key management without replacement. 


 Loss of a major market, key customer(s), franchise, license, or

principal supplier(s). 


 Labor difficulties. 


 Shortages of important supplies. 


 Emergence of a highly successful competitor.

o Other

 Non-compliance with capital or other statutory requirements. 


  Pending legal or regulatory proceedings against the entity that
may, if successful, result in claims that the entity is unlikely to be
able to satisfy. 


 Changes in law or regulation or government policy expected to

adversely affect the entity. 


 Uninsured or underinsured catastrophes when they occur. 


Responsibilities of the Auditor

- obtain s&a evidence
o that the mgt used its going concern assumption properly in making their
fs
- conclude whether there are uncertainties about the entity’ ability to operate as a
going concern (responsibility exists kahit na walang express requirement)
o if they do find evidence na the company may not be able to continue as a
going concern then the auditor needs to revise his risk assessment and
modify the planned audit procedures to cater to the revised level of risk.
o The auditor’s inherent limitation to detect material misstatements is
greater for future events so any absence of going concern uncertainty in
the auditor’s report isn’t a guarantee for the entity’s going concern

Objectives
- Get evidence that the mgt uses their going concern assumption properly in
preparing their fs
- Conclude whether there is a material uncertainty that exists that can hamper
the entity’s continuance as a going concern
- Determine implications for the auditors report

Requirements
- Risk assessment procedures and related activities