Introduction
In a 2008 report to the European Commission titled ‘Comparative Studying on the Application of the Standard on Events After the Balance Sheets Dates – IAS 10, in the audited financial statements of four New Member States of the EU’, the Public Oversight Accounting and Auditing of the Republic of Bulgaria (POAAC) stated that one of the key factors determining risk inherent in the auditor’s work is that financial statements are not only prepared over a continuously changing period which may cover periods of economic downturn and upturn, but the situation may continue to change even after the end of the financial reporting period. The purpose of IAS 10 is to set standards for adjusting financial statements for events after the end of the period it covers and for disclosing the date financial statements are made. Requirements for the evaluation and cross-verification of management’s conclusions for the going concern of the enterprise are also included because events occurring until the financial statements are prepared help management determine what basis will be used to prepare the financials and what assumptions will be used. Furthermore, information about subsequent events is described at the level of International Standards.
In a December 2007 speech, an acting chairman of the Securities and Exchange Commission (SEC) stated that subsequent events, and the significance of those events in the reporting of financial results to the public, have long been a focus of regulation and have been of increasing concern in recent years. He went on to say that events in the world have led everyone to emphasize more than ever the need for high-quality financial reporting and that the notions of fair presentation and disclosing post year-end events have been fundamental to U.S. GAAP and to the SEC disclosure system for many years. Moreover, international accounting standards require that after the reporting period, an enterprise should not prepare its financial statements on the going concern assumption; the circumstances that led to preparation should be disclosed. Therefore, subsequent events are always an area that piques the interest of financial markets because they are an important aspect of financial analysis and because investors rely on financial information to make informed investment decisions.
Definition of Subsequent Events in Audit Engagements
This section provides guidance to auditors on their responsibility for considering the effect of events, transactions, or matters that happened after the date of the auditor’s report. The section also provides guidance on the auditor’s responsibility to consider the effect of events, transactions, or matters that happened after the date of the auditor’s report. The auditor should consider the effect of these subsequent events from the ending date of the latest period reported on to the date of the management representation letter. If audit adjustments are necessary for conditions that existed as of the date of the auditor’s report, the auditor should perform the interrelated procedures set forth in interpretations .23 and .25 of that subsection.
For purposes of this guide, subsection 560-10-20 provides the AICPA Assurance Services Executive Committee’s definition of the types of subsequent events that are of concern in an audit and the period through which consideration should be given to the conditions that existed as of the date of the auditor’s report. This subsection is briefly described here to provide understanding and context for issues regarding required procedures and auditor responsibility that are discussed in scroll.
Considerations in Financial Reporting
As mentioned above, Subsequent events in the context of audit engagements refer to events that occur after the reporting period but before the financial statements are authorized for issue. These events can have significant implications on financial reporting and audit processes. This article explores the requirements of International Accounting Standard (IAS) 10, considerations in financial reporting, differences between adjusting and non-adjusting events with detailed examples, and auditor responsibilities in light of International Standard on Auditing (ISA) 560. Additionally, it outlines audit procedures and documentation practices related to subsequent events.
Proper identification and classification of subsequent events are crucial in financial reporting to ensure the accuracy and reliability of financial statements. This involves:
- Monitoring Events: Entities should establish procedures to identify events occurring after the reporting period but before the financial statements are issued.
- Evaluation: Assess whether the event is an adjusting or non-adjusting event.
- Disclosure: Ensure adequate disclosure of non-adjusting events that could impact users’ understanding of the financial statements.
Subsequent events play a critical role in ensuring the accuracy and reliability of financial statements. Adherence to IAS 10 and ISA 560 requirements is essential for both preparers and auditors of financial statements. Understanding the differences between adjusting and non-adjusting events, implementing robust procedures for identifying and evaluating subsequent events, and maintaining thorough documentation are all vital components of effective financial reporting and auditing practices. By doing so, entities can provide more transparent and reliable financial information, thereby enhancing stakeholders’ confidence and decision-making processes.
