Question

4. Define 'subsequent activities'. Describe the audit procedures that the auditor would perform to detect subsequent events. Explain Type 1 and Type 2 events.

5. Distinguish between the securities act of 1933 and the securities exchange act of 1934. Why is it easier for a Plantiff to sue an auditor under the securities act of 1933?

Answer 1

Answer 4

Defining subsequent events:

It is the event that occurs before the financial statements of an organisation is published or are available to be published. It occurs just after the reporting period. It need not be disclosed in the financial statements.

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B/s dated 31/12/17  ----------------------------------------------------------------- Financial statement publishing on Feb 18

Subsequent event occurence

Audit procedure to detect subsequent events.

- Check the interim financial statements, proforma financial statements

- Inquire and discuss the reports with the officials responsible.

- Check the status of the contingent liabilities.

- Check whether any adjustments made in balance sheet between date of balance sheet and date of inquiry.

- Check minutes of meetings.

The two types of subsequent events are:

1) Recognized event: The one which occurs prior to the financial report publishing. This can be identified and evaluated as it occurs before the balance sheet date.

2) Non recognized event: The one which occurs after the financial statements are published and are neither identifiable nor evaluated before the balance sheet date.

Answer 5

The difference between the two acts are as below.

Securities Act 1933	Securities Exchange Act 1934
Dealt with new registration of securities.	Dealt with rules that govern the Securities exchange, registration and regulation of broker-dealers
There was no protection for investors and other parties. It emphasised on disclosures.	The Act insisted on investor protection and registration of exchanges, brokers, associations. This prohibited insider trading.

It was easier for a Plantiff to sue an auditor under Securities act of 1933 as:

There is no protection for any of the bodies associated with the investment.

The Act dealt with registration of new securities and disclosures.

The plantiff does not have to produce evidences for fraud or negligence, his dependency on the auditor for the financial statements whereas in Securities Act of 1934, the plantiff must submit evidences for any incident, omissions or errors in the audited financial statements.

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