SA 560

SA 560 Subsequent Events

SA 560, “Subsequent Events” deals with the auditor’s responsibilities relating to subsequent events in an
audit of financial statements.

SA 700 explains that the date of the auditor’s report informs the reader that the auditor has considered
the effect of events and transactions of which the auditor becomes aware and that occurred up to that
date.

Meaning of Subsequent Events.

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
○ had they been known to the auditor at that date,
○ may have caused the auditor to amend the auditor's report.

Types of Subsequent Events

Type 1
Those events that provide additional evidence with respect to conditions that existed on the date of balance
sheet and effect the estimation made in the preparation of the financial statements. The statement should be
adjusted for any change in estimates resulting from the use of evidence of subsequent events.

For example
● Debtors as on balance sheet date are declared insolvent after the balance sheet date but before
auditor's report
● Settlement of legal disputes before audit report date, which arose before balance sheet date.

Type 2
Those events which provide evidence with respect to conditions that did not exist on the date of the balance
sheet being reported on but arose subsequent to the date. These events should not result in adjustments of the
financial statements. Some of these events however may be of such a nature that disclosure of them is required
to keep the financial statements from not being misleading.

For example
Purchase of business, Sale of shares and debentures, Loss of plant or inventory as a result of fire.

Other definitions.
Date of the financial statements
The date of the end of the latest period covered by the financial statements.

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 SA 560

Date of the auditor’s report

The date the auditor dates the report on the financial statements in accordance with SA 700

Date the financial statements are issued

The date that the auditor’s report and audited financial statements are made available to third parties.

Objective of Auditor
● Obtain Sufficient And Appropriate Evidence about whether
○ 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
○ are appropriately reflected in those financial statements; and
● Respond appropriately
○ to facts that become known to the auditor after the date of the auditor's report,
■ that, had they been known to the auditor at that date,
■ may have caused the auditor to amend the auditor's report.

Audit Procedure Regarding Events Occurring between the Date of the Financial
Statements and the Date of the Auditor’s Report

The auditor shall perform audit procedures designed to obtain sufficient 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 and are appropriately reflected in those financial statements.

Risk assessment w.r.t Subsequent Event Shall Include

The auditor shall take into account the auditor’s risk assessment which shall include the following:
● Obtaining an understanding of any procedures management has established to ensure that
subsequent events are identified.
● Inquiring of management and, where appropriate, those charged with governance as to whether
any subsequent events have occurred which might affect the financial statements.
● Read the minutes of meeting of board of directors, executive committee, meeting of shareholders
held after balance sheet date
● Read latest interim financial statements.

Written Representations
The auditor shall request management and, where appropriate, those charged with governance, to
provide a written representation that
● all events occurring subsequent to the date of the financial statements and for which the
applicable financial reporting framework requires adjustment or disclosure have been adjusted or
disclosed.

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 SA 560

Auditor’s Obligations Regarding Facts Which Become Known After Date of

Auditor’s Report

Facts which become known to the auditor after the date of the auditor’s report but before the date
the financial statements are issued.
The auditor has no obligation to perform any audit procedures regarding the financial statements after the
date of the auditor’s report.
● However, when, after the date of the auditor’s report but before the date the financial statements are
issued, a fact becomes known to the auditor that,
○ had it been known to the auditor at the date of the auditor’s report,
○ 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.
■ Determine whether the financial statements need amendment and, if so,
■ Inquire how management intends to address the matter in the financial statements.

Facts Which Become Known to the Auditor After the Financial Statements have been Issued.
After the financial statements have been issued, the auditor has no obligation to perform any audit procedures
regarding such financial statements.
● However, when, after the financial statements have been issued, a fact becomes known to the auditor
that,
○ had it been known to the auditor at the date of the auditor’s report,
○ 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.
■ Determine whether the financial statements need amendment and, if so,
■ Inquire how management intends to address the matter in the financial statements.

The auditor shall perform audit procedures designed to obtain sufficient 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. Explain.
(RTP, May 2019, NA)
OR
The auditor shall perform audit procedures designed to obtain sufficient appropriate audit evidence that all events
occurring between the date of the financial statements and the date of the auditor's report,that requires
adjustment of, or disclosure in, the financial statements have been identified. With reference to SA 560, what are
the audit procedures included in the auditor's risk assessment ?
(SA, July 2021, 4 Marks)

“The auditors should consider the effect of subsequent events on the financial statement and on the auditor's
report”– Comment according to SA 560.
(MTP1, Nov 2019, 4 Marks)

SA 560 “Subsequent Events”, establishes standards on the auditor’s responsibility regarding subsequent events.

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 SA 560

Meaning of subsequent events

According to it, ‘subsequent events’ refer to those events which occur between the date of 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. It lays down the standard that the auditor should consider the effect of subsequent events on the financial
statements and on the auditor’s report.

Audit procedures
The auditor should obtain sufficient appropriate evidence that all events upto the date of the auditor’s report
requiring adjustment or disclosure have been identified and to identify such events , the auditor should-
a) obtain an understanding of any procedures management has established to ensure that subsequent events
are identified.
b) Inquire of management and, where appropriate, those charged with governance as to whether any
subsequent events have occurred which might affect the financial statements.

Examples
The auditor may may make specific inquiries about the following matters:
● Whether new commitments, borrowings or guarantees have been entered into.
● Whether sales or acquisitions of assets have occurred or are planned.
● Whether there have been increases in capital or issuance of debt instruments such as the issue of
new shares or debentures, or an agreement to merge or liquidate has been made or is planned.
● Whether any assets have been appropriated by government or destroyed, for example, by fire or
flood.
● Whether there have been any developments regarding contingencies.
● Whether any unusual accounting adjustments have been made or are contemplated.
● Whether any events have occurred or are likely to occur that will bring in question the
appropriateness of accounting policies used in the finance statements, as would be the case, for
example, if such events call ir question the validity of the going concern assumption.
● Whether any events have occurred that are relevant to the measurement estimates or provisions
made in the financial statements.
● Whether any events have occurred that are relevant to the recoverability assets.

The auditor has no obligation to perform any audit procedures regarding the financial statements after the date of
the auditor’s report. However, when, after the date of the auditor’s report but before the date the financial
statements are issued, a fact becomes known to the auditor that, had it been known to the auditor at the date of
the auditor’s report, may have caused the auditor to amend the auditor’s report. Explain the auditor’s obligation in
the above situation.
(RTP, May 2020, NA) (MTP2, Nov 2021, 3 Marks) (ICAI study mat)

SA 560, “Subsequent Events” deals with the auditor’s responsibilities relating to subsequent events in an audit of
financial statements. Financial statements may be affected by certain events that occur after the date of the
financial statements. Many financial reporting frameworks specifically refer to such events. Explain those events
and also define subsequent events.
(RTP, Nov 2021, NA)

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