ISA 560 SUBSEQUENT EVENT

ELEMENTS OF
AUDIT

Three party Financial Sufficient Audit report/

IFRS appropiate
relationship Statement opinion
audit
evidence

SHAREHOLDER ISA 10

MANAGEMENT EVENT AFTER

REPORTING PERIOD

ADJUST FINANCIAL
AUDITOR
STATEMENT
ADJUSTING EVENT

DISCLOSURE, IF
NON-ADJUSTING MATERIAL
EVENT

ADJUSTING Condition existed at year end NON-ADJUSTING

YES NO
EVENT EVENT
 31-DEC-2021
ACCOUNT XX
RECIEVABLE
WRITE OFF (XX)
ISA 560 SUBSEQUENT EVENT PROVISION (XX)

IMPAIRMENT (XX)

01 EXAMPLE XX

NOV-21 DEC-21 YEAR END JAN-22 FEB-22

SALES BANK
CORRUPT

DEFAULT? AFTER
YEAR
CONDITION END
EXISTED

ADJUSTING
EVENT
REVENUE RECORDED IN IMPAIRMENT RECORDED IN
AND
2021 2021

PROFIT PROFIT
MATCHING CONCEPT:
Revenue recorded in 2021 so impairment shall also recorded in 2021
because condition existed at year end.
ISA 560 SUBSEQUENT EVENT

02 EXAMPLE PIA

SEP 21 DEC-21 JAN-22 DEC-31 15-JAN

INVENTORY SOLD PPE CRASH

RS: 100 RS: 80

CONDITION
INVENTORY EXISTED
OUTDATED

NEW
COMPETITOR NO

MARKET
SHARE
REDUCED NON-ADJUSTING
EVENT

Condition existed at year end ADJUSTING

EVENT
DISCLOSURE IN
IMPAIRMENT OF YEAR END RS: 20
FS
ISA 560 SUBSEQUENT EVENT
 SCOPE
Auditor’s responsibilities relating the
ISA 560 SUBSEQUENT EVENT subsequent event in an audit of the
financial statements.

OBJECTIVES
The objectives of the auditor are:

To obtain sufficient
appropriate audit evidence
about whether events
occurring between the date To respond appropriately to
of the financial statements facts that become known to the
and the date of the auditor’s auditor after the date of
report that require auditor’s report, that, had they
adjustment of, or disclosure in been known to the auditor at
the financial statements are that date, may have caused the
appropriately reflected in auditor to amend the auditor’s
those financial statements in report.
accordance with the
applicable financial reporting
framework; and

A B
ISA 560 SUBSEQUENT EVENT FIRST OBJECTIVE

OCCURING BETWEEN THE DATE OF BALANCE SHEET 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 or as near
as practicable that require adjustment of, or disclosure in,the financial statements that have been identified.

Obtaining an understanding of any procedures management has been established to

ensure that subsequent events are identified. 01

Inquiring of management and, where appropriate, those charged with governance as

02 to whether any subsequent events have occurred which might affect the financial
statements

Reading minutes, if any, of the meetings of the entity's owners, management and
those charged with governance that have been held after the date of the financial
03
statements and inquiring about matters discussed at any such meetings for which
minutes are not yet available
ISA 560 SUBSEQUENT EVENT FIRST OBJECTIVE

OCCURING BETWEEN THE DATE OF BALANCE SHEET AND THE DATE OF THE
AUDITOR’S REPORT

04 Reading the entity's latest subsequent interim financial statements, if any.

The auditor shall request management and, where appropriate, those charged with
governance, to provide a written representation in accordance with ISA 580 that all 05
events occurring subsequent to the date oft the financial statements and for which the
applicable financial reporting framework requires adjustment or disclosure have been
adjusted or disclosed.
ISA 560 SUBSEQUENT EVENT

RESULT OF AUDIT PROCEDURE

YES NO

FINANCIAL STATEMENT FINANCIAL STATEMENT

ARE PREPARED IN ACCORDANCE ARE NOT PREPARED IN
WITH IFRS ACCORDANCE WITH IFRS

UNMODIFIED OPINION
MATERIAL MATERIAL + PERVASIVE

QUALIFIED ADVERSE
 ISA 560 SUBSEQUENT EVENT t
SECOND OBJECTIVE

FACTS WHICH BECOME KNOWN TO THE AUDITOR AFTER THE DATE OF THE
AUDITOR’S REPORT BUT BEFORE THE DATE OF THE FINANCIAL STATEMENTS
ARE ISSUED

Discuss the matter with management and, where

appropriate, those charged with governance.

The auditor has no obligation

to perform any audit
procedures regarding the
financial statements after
the date of the auditor’s Determine whether the financial statements need
report. However, if, after the amendment and, if so,
date of the auditor’s report
but before the date the
financial statements are
issued, a fact becomes
C

known to the auditor that, Inquire how management intends to address the matter
had it been known to the in the financial statements
auditor at the date of the
auditor’s report, may have
caused the auditor to amend
the auditor’s report, the
Important note: As explained in ISA 210, the terms of the
auditor shall.
audit engagement include the agreement of management
to inform the auditor of facts that may affect the financial
statements, of which management may become aware
during the period from the date of audit report to the date
FS are issued.
ISA 560 SUBSEQUENT EVENT t

30 MARCH 5 APRIL BALANCE SHEET = 6 TRILLION

MATERIALITY = 6 BILLION

SIGN CUSTOMER
AUDIT BANK
REPORT CORRUPT

Loan of RS 100000

NO PROVISION RECORDED

MODIFY OPINION

NO BECAUSE IMMATERIAL
ISA 560 SUBSEQUENT EVENT t

IF MANAGEMENT AMENDS THE FINANCIAL

STATEMENTS, THE AUDITOR SHALL:

Carry out the audit procedures necessary in the

circumstances on the amendment.

Extend the audit procedures referred above to the

date of the new auditor’s report; and

Provide a new auditor’s report on the amended

financial statements. The new auditor’s report shall not
be date dearlier than the date of approval of the amended
financial statements
 ISA 560 SUBSEQUENT EVENT

30 MARCH 5 APRIL 6 7 8 9 10 11 12 13 20 APRIL

FS MANAGMENT
SIGN CRASH INQUIRE
AMEND FS WORKING
FS NEW AUDIT
AUDIT PLANE DISCUSS MANAGMENT AGREED
OR AMENDED AMENDED
ON FS PROVIDE
REPORT TO AMEND
NOT AMENDED

UNMODIFIED
OPINION
ISA 560 SUBSEQUENT EVENT t

IF MANAGEMENT DOES NOT AMENDS THE FINANCIAL STATEMENTS,

THE AUDITOR SHALL

YES NO

Shall notify management and TCWG not

to issue financial statement to third
parties before necessary amendments Auditor shall modify opinion as
have been made. required by ISA 705 and then
provide auditors report
If FS are never the less subsequently
issued without the necessary amendment,
the uditor shall take appropriate action to
seek, to prevent reliance on auditor’s
report.

The auditor’s course of action to prevent

reliance on the auditor’s report on the
financial statement depends upon the
auditor’s legal rights and obligation.
Consequently auditors may consider it
appropriate to seek legal advice
ISA 560 SUBSEQUENT EVENT t THIRD OBJECTIVE

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,
if, 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 fthe 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 01

02 Determine whether the financial statements need amendment and, if so

Inquire how management intends to address the matter in the FS

03
ISA 560 SUBSEQUENT EVENT t THIRD OBJECTIVE

IF MANAGEMENT AMENDS THE FINANCIAL STATEMENTS, THE

AUDITOR SHALL:

Carry out the audit procedures necessary in the circumstances on the amendment.
01

Extend the audit procedures referred above to the date of the new auditor’s
report 02

Provide a new auditor’sr eport on the amended financial statements. The new auditor’s
03 report shall not be dated earlier than the date of approval of the amended financial
statements

The auditor shall include in the new or amended auditor’s report an emphasis of matter
paragraph or other matter paragraph referring to a note to the financial statements that
more extensively discusses the reason for the amendment of the previously issued financial
04
statements and to the earlier report provided by the auditor

Review the steps taken by the management to ensure that anyone in receipt of the
05 previously issued FS together with the auditors report thereon is informed of the situation
ISA 560 SUBSEQUENT EVENT t

IF MANAGEMENT DOES NOT TAKE NECESSARY STEPS TO ENSURE THAT ANYONE

IN RECEIPT OF PREVIOUSLY ISSUED FS IS INFORMED OF THE SITUATION AND
DOES NOT AMEND THE FS, THE AUDITOR SHALL:

Notify management and those charged with governance, that the

auditor will seek to prevent future reliance on the auditor’s report. If,
despite such notification, management or those charged with
governance do not take these necessary steps, the auditor shall take
appropriate action to seek, to prevent reliance on the auditor’s report.

The auditor’s course of action depends upon the auditor’s legal rights
and obligations. Consequently, the auditor may consider it appropriate
to seek legal advice
ISA 560 SUBSEQUENT EVENT FIRST OBJECTIVE

ADDITIONAL AUDIT PROCEDURES OR ABOVE PROCEDURES COULD NOT BE

PERFORMED

Review or testing of Where no subsequent

accounting records or interim and Minutes are
transactions occurring prepared – inspect
between the date of the available books and
financial statements and records including bank
the date of the auditor’s statement.
report

Read the entity’s latest Inquire, or extend

available budgets, cash previous oral or written
low forecasts and other inquiries,of the entity’s
related management legal counsel concerning
reports for periods after litigation and claims
the date of the financial
statements;
 ISA 560 SUBSEQUENT EVENT FIRST OBJECTIVE

Whether new commitments, borrowings or Whether new commitments, borrowings or

guarantees have been entered into guarantees have been entered into

01 05
Whether any unusual accounting
Whether sales or acquisitions of assets
have occurred or are planned. 02 The auditor may 06 adjustments have been made or are
contemplated.
inquire as to the
current status of items
that were accounted Whether any events have occurred or are
Whether there have been increases in
for on the basis of
capital or issuance of debt instruments, 03 preliminary or in
07 likely to occur that will bring into question
such as the issue of new shares or the appropriateness of accounting policies
debentures, or an agreement to merge or conclusive data and used in the financial statements, as would
liquidate has been made or is planned may make specific i be the case, for example, if such events call
nquiries about the into question the validity of the going
following matters: concern assumption.
Whether any assets have been
appropriated by government or 04 08 Whether any events have occurred that are
relevant to the measurement of estimates or
destroyed, for example, by fire or flood.
provisions made in the financial statements.

09 Whether any events have occurred that are

relevant to the recoverability of assets.
 TRADE RECEIVABLE

Existence

01 02
For the
Select the sample confirmation
from receivable received, assess
register and send the reliability of
confirmation the confirmation
received
 TRADE RECEIVABLE

Completeness

Obtain the list of For the sample

Goods Delivery selected from the
Note which must list of Goods
be sequentially Delivery Note, trace
numbered it to receivable
listing
 TRADE RECEIVABLE

RIGHTS AND
OBLIGATION
After assessing In case of difference,
reliability, match the obtain the
balance with reconciliation from
receivable listing the management

Inspect supporting Incase confirmation

documents such as not received,
invoice, GDN, credit perform alternative
note and bank testing such as
statement to test subsequent receipt
reconciling items and invoices / GDN
issued during the year
 TRADE RECEIVABLE

Obtain an understanding of
01 management process to record
provision and ensure that it is
06 Recalculate the aging of receivable

consistent with the AFRE

VALUATION
PROCEDURES
FOR
IRRECOVERABLE
RECEIVABLE
Perform test of controls on
provision recorded by the
02 Obtain management working
for provision for doubtful debt
07
management

Review any correspondence of

03 the Company with the customers 08 Check that whether assumption,
estimates and judgement used by
and lawyers that deals with unpaid the management are reasonable
or disputed debts

Obtain the aging of receivable

04 Inspect subsequent receipts to
assess the recoverability of 09
balance

05 Match the balance with the GL and

receivable listing
 INVENTORY

Obtain inventory register Select sample from

as at year end warehouse and trace /
inspect it to inventory
Match the balances GENERAL register
appearing in the inventory PROCEDURES
register with the General
COMPLETENESS
Ledger and if not matching
obtain the reconciliation

Select sample from

Select sample from the EXISTENCE inventory register and for
inventory register and Rights and the sample selected
inspect the inventory at Obligation Inspect supporting
warehouse to determine
documents such as
whether the asset exists.t
invoices (to check
company’s name), GRN
and etc.
 INVENTORY
Select a sample from inventory register and
inspect the relevant documentation (agreement,
invoice (amount)etc.) to evaluate whether the
inventory has been accurately recorded in the
01 inventory register

Obtaining an understanding of management

process related to identifying, estimating and
02 recording impairment for inventory to determine
whether it is consistent with the requirement of
IAS 02.
VALUATION
Test the operating effectiveness of control over
03 recording of impairment on inventory

Obtain management’s calculation to

impairment and check that whether
04 management assumptions (estimated selling
price and estimated cost to make sales are
reasonable
05 Perform subsequent event procedures such as
Inspect subsequent sales register to verify the
subsequent sales price.
ISA 560 SUBSEQUENT EVENT DUAL DATING

31-DEC 25-FEB 30-MARCH 5-APRIL 10-APRIL 12-APRIL

FINANCIAL CUSTOMER BOARD OF

STATEMENT BOARD OF SIGN AUDIT SIGN AUDIT
DIRECTOR REPORT BANK DIRECTOR REPORT
APPROVED CORRUPT APPROVED
PPE RS 100
FINANCIAL AMENDED
INVENTORY RS 200
STATEMENT FINANCIAL
AC/REC RS 300
STATEMENT
RS 600
SUBSEQUENT DISCUSS
PROCEDURE WITH
MANAGEMENT
PPE
ALREADY FINANCIAL
INVENTORY
A/C RECEIVABLE
APPROVED STATEMENT

PPE RS 100
RECEIVABLE = RS 100
INVENTORY RS 200
APPROVED A/C REC RS 200
BY RS 500
BOARD
WRITE OFF
ISA 560 SUBSEQUENT EVENT t

AUTUMN 2013
Q4
(A) Briefly describe the extent of auditor's responsibility relating to subsequent
events occurring between the date of the financial statements and the
auditor's report. (03)
(B) Identify any five procedures that the auditor may undertake to fulfil the
responsibility as discussed in (a) above. (05)

FIRST OBJECTIVE
OCCURING BETWEEN THE DATE OF BALANCE SHEET AND THE DATE OF THE
AUDITOR’S REPORT

The Auditor has the responsibility to perform audit

procedures to obtain sufficient appropriate audit evidence
that all the subsequent event has been identified account
for and disclose as per the requirement of IFRS which is IAS 10
ISA 560 SUBSEQUENT EVENT t

01 Obtaining an understanding of any procedures management has been established to

ensure that subsequent events are identified.

Inquiring of management and, where appropriate, those charged with governance as to

02
whether any subsequent events have occurred which might affect the financial statements

03
Reading minutes, if any, of the meetings of the entity's owners, management and those
charged with governance that have been held after the date of the financial statements
and inquiring about matters discussed at any such meetings for which minutes are not
yet available

04
Reading the entity's latest subsequent interim financial statements, if any.

05
The auditor shall request management and, where appropriate, those charged with
governance, to provide a written representation in accordance with ISA 580 that all
events occurring subsequent to the date oft the financial statements and for which the
applicable financial reporting framework requires adjustment or disclosure have been
adjusted or disclosed.
ISA 560 SUBSEQUENT EVENT
t

Q8
Expert Limited (EL) is an unlisted public company engaged in production of
various products. In January 2018, an equipment malfunctioned which caused
severe injuries to some of the workers. EL had paid compensation to the workers
but a case for violation of safety regulations had also been filed by the regulator.
On the basis of legal advice, EL had recorded a provision of Rs. 5 million in its
financial statements for the year ended 31 December 2018.

The board of directors approved the financial statements on 01 March 2019 and on
the same date your firm expressed an unmodified opinion. EL plans to issue the
financial statements on 5 March 2019. On 3 March 2019 the court imposed a penalty
of Rs. 15 million on EL. Management of EL informed the auditor accordingly. (09)

REQUIREMENT
Evaluate the need for amendment in financial statements and state the
procedures which the auditor would need to perform in the above situation.
ISA 560 SUBSEQUENT EVENT

JAN-2018 31-DEC-2018 1-MARCH-2019 3-MARCH-2019 5-MARCH-2019

MALFUNCTION BOARD COURT IMPOSE FINANCIAL

YEAR END
OF PLANT OF DIRECTOR PENALTY OF STATEMENT
APPROVE RS 15 MILLION ISSUE
FINANCIAL
STATEMENT

INJURIES EL
MANAGEMENT
AUDITOR INFORMED
SIGNED AUDITOR

UNMODIFIED
OPINION
ADJUSTING
EVENT
FINANCIAL STATEMENT
FOR THE YEAR END 31 DEC 2018

PROVISION RS 5000000
 ISA 560 SUBSEQUENT EVENT t
SECOND OBJECTIVE

FACTS WHICH BECOME KNOWN TO THE AUDITOR AFTER THE DATE OF THE
AUDITOR’S REPORT BUT BEFORE THE DATE OF THE FINANCIAL STATEMENTS
ARE ISSUED

Discuss the matter with management and, where COURT

The auditor has no obligation appropriate, those charged with governance. DECISION
to perform any audit
procedures regarding the
financial statements after
the date of the auditor’s
report. However, if, after the
date of the auditor’s report Determine whether the financial statements need
but before the date the amendment and, if so,
financial statements are
issued, a fact becomes
known to the auditor that,
C

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. ( AS PER ISA 10
IT IS AN ADJUSTING
EVENT BECAUSE CONDITION
EXISTED ON BALANCE SHEET).
TO RECORD
Inquire how management make amendments FURTHER
PROVISION
OF
RS 10 MILLION
Important note: As explained in ISA 210, the terms of the
audit engagement include the agreement of management
to inform the auditor of facts that may affect the financial
statements, of which management may become aware
during the period from the date of audit report to the date
FS are issued.
ISA 560 SUBSEQUENT EVENT t

IF MANAGEMENT AMENDS THE FINANCIAL

STATEMENTS, THE AUDITOR SHALL:

Carry out necessary audit procedures such as inspect the

court order to determine the amount of penalty.

Extend the audit procedures referred above to the

date of the new auditor’s report; and

Provide a new auditor’s report on the amended

financial statements. The new auditor’s report shall not
be date dearlier than the date of approval of the amended
financial statements
ISA 560 SUBSEQUENT EVENT t

IF MANAGEMENT DOES NOT AMENDS THE FINANCIAL STATEMENTS,

THE AUDITOR SHALL

YES NO

Shall notify management and TCWG not

to issue financial statement to third
parties before necessary amendments Auditor shall modify opinion as
have been made. required by ISA 705 and then
provide auditors report
If FS are never the less subsequently
issued without the necessary amendment,
the uditor shall take appropriate action to
seek, to prevent reliance on auditor’s
report.

The auditor’s course of action to prevent

reliance on the auditor’s report on the
financial statement depends upon the
auditor’s legal rights and obligation.
Consequently auditors may consider it
appropriate to seek legal advice
ISA 560 SUBSEQUENT EVENT t

Q4
Consider each of the following independent situations:

(i) Spruce Limited issued its financial statements on 15 September 2020 for the
year ended 30 June 2020. On 22 September 2020, your audit team came to
know that a major debtor has filed banktruptcy due to destruction of its
production facility in a terrorist attack on 20 August 2020.

(ii) During the audit of Larch Limited (LL) for the year ended 30 June 2020, the
audit team noticed that the management of LL had worked out the net
realisable value (NRV) on the basis of the sales price at year-end. Since NRV
was greater than cost, LL recorded the inventory in the draft financial
statements at cost. However, after reporting period, LL is facing difficulties in
selling the inventory at current price level and therefore considering to
revise its prices. (09)

REQUIREMENT

In each of the above situations, evaluate the need for amendment in the
financial statements and suggest the audit procedures, if any, which the
auditor would need to perform.
ISA 560 SUBSEQUENT EVENT

30 JUNE 2020 20 AUG 2020 15-SEP-2020 22-SEP-2020

APPROVED EVENT
YEAR END TERRORIST
ATTACK FINANCIAL
STATEMENT

MAJOR
PLANT DEBTOR
DESTROY BANKRUPT

BANKRUPT CONDITION
EXISTED

NO
 ISA 560 SUBSEQUENT EVENT t THIRD OBJECTIVE

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,
if, 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 fthe auditor’s report,
may have caused the auditor to amend the auditor’s report, the auditor shall: ( AS
PER IAS 10 IT IS NON- ADJUSTING EVENT BECAUSE CONDITION DOES NOT EXISTED ON
BALANCE SHEET).

( BANKTRUPTCY
Discuss the matter with management and, where appropriate, those charged
with governance. 01 OF THE MAJOR
DEBTOR)

02 Determine whether the financial statements need amendment and, if so

(THAT IS BY
Inquire how management make amendments
03 GIVING
DISCLOSURE)
ISA 560 SUBSEQUENT EVENT t THIRD OBJECTIVE

IF MANAGEMENT AMENDS THE FINANCIAL STATEMENTS, THE

AUDITOR SHALL:

Carry out the audit procedures necessary in the circumstances on the amendment.
01 ( TO SEE BANKTRUPTCY DOCUMENTS)

Extend the audit procedures referred above to the date of the new auditor’s
report 02

Provide a new auditor’sr eport on the amended financial statements. The new auditor’s
03 report shall not be dated earlier than the date of approval of the amended financial
statements

The auditor shall include in the new or amended auditor’s report an emphasis of matter
paragraph or other matter paragraph referring to a note to the financial statements that
more extensively discusses the reason for the amendment of the previously issued financial
04
statements and to the earlier report provided by the auditor

Review the steps taken by the management to ensure that anyone in receipt of the
05 previously issued FS together with the auditors report thereon is informed of the situation
ISA 560 SUBSEQUENT EVENT t

IF MANAGEMENT DOES NOT TAKE NECESSARY STEPS TO ENSURE THAT ANYONE

IN RECEIPT OF PREVIOUSLY ISSUED FS IS INFORMED OF THE SITUATION AND
DOES NOT AMEND THE FS, THE AUDITOR SHALL:

Notify management and those charged with governance, that the

auditor will seek to prevent future reliance on the auditor’s report. If,
despite such notification, management or those charged with
governance do not take these necessary steps, the auditor shall take
appropriate action to seek, to prevent reliance on the auditor’s report.

The auditor’s course of action depends upon the auditor’s legal rights
and obligations. Consequently, the auditor may consider it appropriate
to seek legal advice
 INVENTORY

Select a sample from inventory register and

inspect the relevant documentation (agreement,
invoice (amount)etc.) to evaluate whether the
inventory has been accurately recorded in the
01 inventory register

Obtaining an understanding of management

process related to identifying, estimating and
02 recording impairment for inventory to determine
whether it is consistent with the requirement of
IAS 02.
VALUATION
Test the operating effectiveness of control over
03 recording of impairment on inventory

Obtain management’s calculation to

impairment and check that whether
04 management assumptions (estimated selling
price and estimated cost to make sales are
reasonable
05 Perform subsequent event procedures such as
Inspect subsequent sales register to verify the
subsequent sales price.
ISA 560 SUBSEQUENT EVENT t

Q6
You are the audit manager in a firm of chartered accountants. Following
independent situations are under your consideration:

(A) Mega Motors Limited (MML) offers 3-year warranty for its products. MML assessed
its warranty obligation to be Rs. 20 million for the year ended 30 June 2021. The
board of directors has approved the financial statements on 6 September 2021. Just
before signing the audit report, your audit team came to know about a latent defect in
MML’s products. This defect was neither earlier discovered nor known to MML.

(B) Dawn Hotel Limited was severely damaged by flash flood on 31 August 2021. Initial
assessment of the incident shows that significant repairs are required and the hotel
would not be operational for at least a month. Audit report for the year ended 30 June
2021 has not yet been issued.
(10)

REQUIREMENT

For each of the above situations, evaluate the need for amendment in the
financial statements and suggest the auditor’s course of action.
 INVENTORY

Select a sample from inventory register and

inspect the relevant documentation (agreement,
invoice (amount)etc.) to evaluate whether the
inventory has been accurately recorded in the
01 inventory register

Obtaining an understanding of management

process related to identifying, estimating and
02 recording impairment for inventory to determine
whether it is consistent with the requirement of
IAS 02.
VALUATION
Test the operating effectiveness of control over
03 recording of impairment on inventory

Obtain management’s calculation to

impairment and check that whether
04 management assumptions (estimated selling
price and estimated cost to make sales are
reasonable
05 Perform subsequent event procedures such as
Inspect subsequent sales register to verify the
subsequent sales price.
 AUDIT PROCEDURES

Obtain Going Concern Assessment atleast for the period

1
of 12 months.

2 Inspect cashflow and P&L forecast.

Inspect subsequent interim Financial Statements to compare

3
projected result with actual result.

4 Inspect minutes of meetings of Board of Directors.

5 Inquiry with in house legal counsel.

Confirm existence, terms and adequacy of borrowing

6
facilities.
 ISA 560 SUBSEQUENT EVENT
Question: (Spring 2020 Q.6, 10 marks)
You are the audit manager in a firm of chartered accountants. During the audit of
a client for the year ended 31 December 2019, the audit team has prepared the
following schedule to summarize the responses from three debtors:
Balance
Balance confirmed
Debtor
at year end by the debtor COMMENT

Confirmation was
A Rs. 500,000 Rs. 500,000
received through client.

Confirmation was received after

B Rs. 800,000 Rs. 800,000 many follow-ups with the client.
However, the audit team have
come to know that the
confirming party had not
received the confirmation
request.

Consignment of Rs. 500,000

was shipped on 27 December
C Rs. 500,000 Rs. 150,000 2019 but goods of Rs. 350,000
were returned subsequent to
year-end.

Evaluate the evidence obtained and describe the steps (if any)
REQUIREMENT: which the audit team may perform in respect of the above
debtors.
 ISA 505 EXTERNAL CONFIRMATION
No
Doubts over reliability:
Was received by the auditor
indirectly
Appeared not to come from
originally intended confirming
party
Responses received electronically
because proof of origin and
authority of the respondent is
difficult to establish obtain further
audit evidence to resolve those
doubts
Request management for direct
confirmation
Contacting the CP – when CP
responds by electronic email
Encryption and other information
transmission technology
(A)
Yes Management allowed to send confirmation? No
Yes Received? No Inquire as to management’s reasons for the
refusal, and seek audit evidence as to their
validity and reasonableness (a common
Reliability? In the case of non-response reason is the existence of a legal dispute or
(it may indicate previously ongoing negotiation with confirming party);
unidentified ROMM), the auditor Evaluate the implications of management’s
shall perform alternative audit refusal on ROMM including the ROF, and on
Yes procedures to obtain relevant the N, T and E of other audit procedure; and
and reliable audit evidence. Perform alternative audit procedures to
obtain relevant and reliable audit evidence
Exceptions
UNREASONABLE or UNABLE TO OBTAIN SAAE
No further audit
No procedures required
May indicate MM or ISA 705
Yes PMM. If MM then
check whether it is Material & Pervasive
indicative of fraud. DISCLAIMER
Exception may also
indicate deficiency in Material but not Pervasive
IC. Some exceptions QUALIFIED
do not represent MM
due to timing and
measurement.
ISA 240 FRAUD

Debtor Evaluation Evaluation

Circumstances that indicates the possibility of fraud

therefore auditor shall perform following procedures:
It appears that the
confirmation did not come Other aspect of audit IF SM involved.
from the originally
BB intended confirming party.
It carries risk of
Reevaluate the assessment of ROMM due to fraud.

interception, alteration or Its resulting impact on nature, timing and extent of

fraud. audit procedures to respond to the assessed risk.

Reliability of evidence previously obtained may be

called into question.

There may be doubts about the truthfulness of the

representation made.

May consider to withdraw

 AUTUMN 2013
Q4
(A) Briefly describe the extent of auditor's responsibility relating to subsequent
events occurring between the date of the financial statements and the
auditor's report. (03)
(B) Identify any five procedures that the auditor may undertake to fulfil the
responsibility as discussed in (a) above. (05)
 ISA 560 SUBSEQUENT EVENT t
SECOND OBJECTIVE

FACTS WHICH BECOME KNOWN TO THE AUDITOR AFTER THE DATE OF THE
AUDITOR’S REPORT BUT BEFORE THE DATE OF THE FINANCIAL STATEMENTS
ARE ISSUED

Discuss the matter with management and, where COURT

The auditor has no obligation appropriate, those charged with governance. DECISION
to perform any audit
procedures regarding the
financial statements after
the date of the auditor’s
report. However, if, after the
date of the auditor’s report Determine whether the financial statements need
but before the date the amendment and, if so,
financial statements are
issued, a fact becomes
known to the auditor that,
C

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. ( AS PER ISA 10
IT IS AN ADJUSTING
EVENT BECAUSE CONDITION
EXISTED ON BALANCE SHEET).
TO RECORD
Inquire how management make amendments FURTHER
PROVISION
OF
RS 10 MILLION
Important note: As explained in ISA 210, the terms of the
audit engagement include the agreement of management
to inform the auditor of facts that may affect the financial
statements, of which management may become aware
during the period from the date of audit report to the date
FS are issued.