Question

What type of subsequent events may arise on the completion of Audit work? [8 Marks]

Answer 1

Solution

Subsequent events those may arise after the completion of the audit work may be either adjusting or non adjusting event.

Events arising after the reporting period are considered to be non adjusting events whereas adjusting events provide more evidence of certain conditions those already existed at the end of the reporting period.

Examples of adjusting events.

• Errors or omissions in the books of accounts may be detected after the audit work.
• Fraudulent practices may come to light after the audit work is completed.
• There might have been pending suits against the client at the end of the reporting period which is subsequently settled after the reporting period. Therefore a liability to pay might arise, which is not initially recorded.
• Debtors of the client may have become bankrupt and this event might have occurred after the audit was completed.

These events are to be adjusted in the financial statements.

Examples of non adjusting events.

• Natural calamities may occur thereby destroying the assets of the client.
• In case of a company, the client may declare dividend subsequent to the completion of audit.
• A suit may be filed against the client.

These events need not be adjusted in the financial statements but the fact has to be disclosed.