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PSA 560. SUBSEQUENT EVENTS
Auditing and Assurance Services

 Subsequent Events
- Occur between the date of the financial statements and the date of the auditors’ report
 Subsequently discovered facts – become known after the date of the auditors’ report

Beginning Year-end date Date of the auditors’ report Audit report

of the year (date of FS) (audit completion date) release date

1 2 3

Subsequent Events Subsequently

Discovered Facts
Auditors’ Responsibilities:
Period 1: Auditors have a responsibility to discover and evaluate all subsequent events that may
have a material effect on the financial statement
Period 2: Auditors have a responsibility to examine only events that come to their attention
Period 3: Auditors have a responsibility to examine only events that come to their attention and that
existed at the date of the auditor’s report

Auditing the Facts Before FS are Issued

Have the facts existed at the date STOP!

NO
of the auditor's report
YES
Discuss the matter with
management and TCWG NO

(1) Modify opinion, if auditor’s report has

Do the financial statement need
amendment? not been issued;
YES
(2) If auditor’s report already issued notify
Inquire how management intends
to address the matter MGT & TCWG not to issue the F/S. If
NO otherwise issued, take actions seek legal
Does the management amend the advice, to prevent reliance on the report.
F/S?
YES Notify MGT & TCWG of intention to take
1) Carry out procedures actions to prevent future reliance on the
2) Issue new auditor's report with report. If, despite such notification
Emphasis on Matter (EOM) or Other MGT/TCWG does not take the necessary
Matter (OM) Paragraph steps, take appropriate action (ex.
Consulting with legal counsel) to prevent
reliance on the auditor’s report.
 Substantive Test for Subsequent Events
 Inquiry of key client management
 Correspondence with attorneys
 Review of internal client statements and other records prepared subsequent to the balance sheet
date
 Examine minutes of board of director meetings
 Obtain a letter of representation from client management

Analytical procedures done during the completion of the audit are useful as…
 A final review for material misstatements or financial problems not noted during other testing
 Providing a final objective look at the financial statements

 Adjusting vs. Non-Adjusting Events

Type I: Adjusting Events Type II: Non-Adjusting Events
Those that have a direct effect on the financial Those that have no direct effect on the financial
statements and require adjustment statements but for which disclosure is advisable
 Loss on Trade Receivables (ex. Bankruptcy of a
Customer)
 Sale of bond or capital stock issue
 Credit notes relating to sale invoices in the year
 Purchases of business
end
 Legal issues after the year-end
 Inventory at year end sold lower than cost or
 A fire happening after the financial statement
obsolete or scrapped
date which had to impact on inventory because
 Discovery of fraud or errors that show that FS
it was sold prior to the fire
are incorrect
 Major business combination after the reporting
 Disposal of losing segment, if the price is below
period
book value
 Announcing a plan to discontinue an operation
 Settlement of litigation for an amount different
from estimates at year-end
a. The settlement after the reporting period of a
court case that the entity had a present a. Abnormally large changes after reporting period
obligation at the end of the reporting period in asset prices or foreign exchange
b. The receipt of information after the reporting b. changes in tax rates or tax laws enacted or
period indicating that an asset was impaired at announced after the reporting period that have a
the end of the reporting period, or the amount significant effect on current and deferred tax assets
of a previously recognized impairment loss for and liabilities
that asset needs to be adjusted
For events occurring after the reporting period:
For the events occurring after the reporting period:
 Adjust the FS before issuance: evidence on
 Disclose the event in the notes : indicative on
conditions that existed on the balance
conditions that arose after the Balance Sheet
sheet date
date
o Condition must have existed on Balance
o No indication of Balance Sheet sate
Sheet date
o Conditions arose subsequent to Balance Sheet
o Additional evidence available before date
date
of issue

 Contingent Liabilities
- A present obligation that arises from past events but not recognized because it is not probable, and
the amount of obligation cannot be measured with sufficient reliability; hence, only disclosed.
 Potential liability (may or may not become actual liability)
 Depends on future event
  Accounting treatment depends on the likelihood of actual loss (remote, possible, probable) 1

PAS 37 requires: a possible obligation that arises from past events and whose existence will not be
confirmed not by the occurrence or non-occurrence of one or more uncertain future events not
wholly within the control of the enterprise

 PSA 560. Important Paragraphs

SCOPE OF THIS PSA
1. This Philippine Standard on Auditing (PSA) deals with the auditor’s responsibilities relating to
subsequent events in an audit of financial statements. (Ref: Para. A1)
2. 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. Such reporting
frameworks ordinarily identify two types of events:
(a) Those that provide evidence of conditions that existed at the date of the financial
statements; and
(b) Those that provide evidence of conditions that arose after the date of the financial
statements.

OBJECTIVES
4. The objectives of the auditor are to:
(a) Obtain sufficient appropriate audit 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
(b) 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.

DEFINITIONS
 Date of the financial statements – The date of the end of the latest period covered by the
financial statements.
 Date of approval of the financial statements – The date on which all the statements that
comprise the financial statements have been prepared and those with the recognized authority
have asserted that they have taken responsibility for those financial statements.
 Date of the auditor’s report – The date the auditor dates the report on the financial statements
in accordance with [proposed] PSA 700 (Redrafted).
 Date the financial statements are issued – The date that the auditor’s report and audited
financial statements are made available to third parties.
 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.

REQUIREMENTS
11. If management amends the financial statements, the auditor shall:
(a) Carry out the audit procedures necessary in the circumstances on the amendment.
(b) Unless the circumstances in paragraph 12 apply:
(i) Extend the audit procedures referred to in paragraphs 6 and 7 to the date of the new
auditor’s report; and

1
see Intermediate Accounting 2 topic on Provisions and Contingent Liability for in-depth discussion
 (ii) Provide a new auditor’s report on the amended financial statements. The new
auditor’s report shall not be dated earlier than the date of approval of the amended
financial statements.

12. When law, regulation or the financial reporting framework does not prohibit management from
restricting the amendment of the financial statements to the effects of the subsequent event or
events causing that amendment and those responsible for approving the financial statements
are not prohibited from restricting their approval to that amendment, the auditor is permitted
to restrict the audit procedures on subsequent events required in paragraph 11(b)(i) to that
amendment. In such cases, the auditor shall either:
(a) Amend the auditor’s report to include an additional date restricted to that amendment
that thereby indicates that the auditor’s procedures on subsequent events are
restricted solely to the amendment of the financial statements described in the relevant
note to the financial statements; or (Ref: Para. A12)
(b) Provide a new or amended auditor’s report that includes a statement in an Emphasis of
Matter paragraph4 or Other Matter(s) paragraph that conveys that the auditor’s
procedures on subsequent events are restricted solely to the amendment of the
financial statements as described in the relevant note to the financial statements.

Facts Which Become Known to the Auditor After the Financial Statements have been Issued
15. If management amends the financial statements, the auditor shall: (Ref: Para. A17)
(a) Carry out the audit procedures necessary in the circumstances on the amendment.
(b) Review the steps taken by management to ensure that anyone in receipt of the
previously issued financial statements together with the auditor’s report thereon is
informed of the situation.
(c) Unless the circumstances in paragraph 12 apply:
(i) Extend the audit procedures referred to in paragraphs 6 and 7 to the date of the new
auditor’s report, and date the new auditor’s report no earlier than the date of
approval of the amended financial statements; and
(ii) Provide a new auditor’s report on the amended financial statements.
(d) When the circumstances in paragraph 12 apply, amend the auditor’s report, or provide a
new auditor’s report as required by paragraph 12.