Question

1. Type 1 subsequent events involve events that existed ___ the balance sheet date. (after, before, between, close to, near, on)

2. Type 1 subsequent events require ___ of the financial statements. (adjustment, consideration, disclosure, documentation, duplication)

3. Type 2 subsequent events come into existence ___ the balance sheet date. (after, before, between, close to, near, on)

4. Type 2 subsequent events occur after the balance sheet date but ___ the completion of fieldwork. (after, close to, near to, prior to, subsequent to)

5. Type 1 subsequent events come into existence due to new ___ becoming available. (auditors, clients, documentation, evidence, judgement)

Answer 1

Answer 1:

Correct choice is: before

Type 1 subsequent events involve events that existed before the balance sheet date.

Explanation:

By definition Type 1 subsequent events are events that existed at the financial statement date. Hence option 'before' is correct. Other options after, between, close to, near are incorrect.

Answer 2:

Correct choice is: adjustment

Type 1 subsequent events require adjustment of the financial statements.

Explanation:

As per FASB, the financial statements have to be adjusted for any changes in estimates resulting from Type 1 subsequent events. As such other options like consideration, disclosure, documentation, duplication are incorrect.

Answer 3:

Correct choice is: after

Type 2 subsequent events come into existence after the balance sheet date.

Explanation:

By definition Type 2 subsequent events are events that occurred/came into existence after the balance sheet date. As such other options before, between, close to, near, on are incorrect.

Answer 4:

Correct choice is: prior to

Type 2 subsequent events occur after the balance sheet date but prior to the completion of fieldwork.

Explanations:

Events that occur after balance sheet date but prior to the completion of audit fieldwork are Type 2 subsequent event. Other options are incorrect.

Answer 5:

Correct choice is: new evidence

Type 1 subsequent events come into existence due to new evidence becoming available.

Explanation:

Type 1 subsequent events involve events that existed at the balance sheet date. These events come into existence when new evidences become available after balance sheet date. Other options are incorrect.