Question

In: Accounting

Define subsequent events. What different kinds of subsequent events are there? How are they treated differently?...

Define subsequent events. What different kinds of subsequent events are there? How are they treated differently? Why are they treated differently and why does this make sense? With these answers in mind, discuss when an auditor's job is really finished. How does (or should) this affect the acceptance of a client in the first place.

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Expert Solution

A subsequent event is an event that occurs after a reporting period, but before the financial statements for that period have been issued or are available to be issued. Depending on the situation, such events may or may not require disclosure in an organization's financial statements.

The two types of subsequent events are:

Additional information. An event provides additional information about conditions in existence as of the balance sheet date, including estimates used to prepare the financial statements for that period.

New events. An event provides new information about conditions that did not exist as of the balance sheet date.

Generally accepted accounting principles state that the financial statements should include the effects of all subsequent events that provide additional information about conditions in existence as of the balance sheet date.

Auditor's responsibilities for the subsequent events depend on whether they occurred before or after the date of the auditor's report. Auditors have no responsibility to seek any additional evidence in the period between the date of auditor's report and the date the financial statements are issued.

If there are subsequent events that provide new information about conditions that did not exist as of the balance sheet date, and for which the information arose before the financial statements were available to be issued or were issued, these events should not be recognized in the financial statements.


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