Question

Explain five events that will require adjustment by the auditor in the financial statements after the financial statements’ date to the date of signing the audit report.

b) Explain five audit procedures which would be carried out in order to identify any material post balance sheet events.

Answer 1

Events that provide additional evidence about conditions that existed at the balance sheet date should be recognized in the financial statements.

Some examples are

1. Settlement of litigation related to an event occurring before the balance sheet date for an amount different from the liability recognized in the financial statements

2. Events that affect the realization of receivables due to conditions that existed at the balance sheet date. This may occur when trade accounts receivable becomes uncollectible due to a customer filing for bankruptcy after the balance sheet date but before the financial statements are issued.

3. Majour events occurred that gives in indication on adverse effect on going concern.

4. Any indication on existence of impairment on assets.

5. Sale of inventory at below cost.

Audit procedure to identy subsequent events.

Inquiry in to the following.

1. Whether new commitments, borrowings or guarantees have been entered into.

2. Whether sales or acquisitions of assets have occurred or are planned.

3. 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.

4. Whether any assets have been appropriated by government or destroyed, for example, by fire or flood.

5. Whether there have been any developments regarding contingencies.

6. Whether any unusual accounting adjustments have been made or are contemplated.

7. Whether any events have occurred that are relevant to the measurement of estimates or provisions made in the financial statements.

9. Whether any events have occurred that are relevant to the recoverability of assets