Subsequent Events

Question 1

what are subsequent event evaluation periods for private and public companies?

Answer 1

• pubic companies: evaluate subsequent events through the date that the financial statements are issued. Management’s responsibility is up to here
• private and other companies: evaluate subsequent events through the date that the financial statements are AVAILABLE to be issued (meaning they are in form and format complies with GAAP and all approvals for issuance have been obtained.

Question 2

what are auditor’s responsibilities (PRIME) for subsequent events?

Answer 2

PRIME
P. review POST BS transactions for proper cutoff and to better evaluate year-end balances
R. obtain a REPRESENTATION letter from management regarding whether any subsequent events are required adjustments or disclosure
I. Inquire client’s legal counsel concerning litigation, claims, and assessments
M. review the MINUTES of stockholders, directors, and other committee meetings during subsequent period
E. EXAMINE the latest available interim FS and compare them with the FS under audit

Question 3

What is auditor’s responsibility after the original date of the audit report?

Answer 3

• NO ACTIVE responsibility after the original date of the audit report
• However, if becomes aware of any subsequent events before the report release date, should consider if necessary to adjust the FS

Question 4

what are auditor’s actions if information materially affects the report discovered after the issuance of the report?

Answer 4

• revised FS
• make necessary disclosures
• notify that FS and auditor’s report should not be relied upon

Question 5

what to do if client refuses to make adjustments on FS?

Answer 5

• notify each member of the board of directors
• notify client to disassociate report with the FS
• alert regulatory agencies
• notify report relying parties that the auditor’s report should no longer to be relied on

Question 6

what types of subsequent events?

Answer 6

• subsequent events occurred AFTER the BS date: DO NOT recognized. Disclose/footnote only
• subsequent events occurred BEFORE or AT the BS date: RECOGNIZED by adjustment amounts and or adding disclosures. Examples: settlement of litigation, and loss on an uncollectible receivable happens when a customer filed bankruptcy after the BS not before the date the FS are issued/available to be issued should be recognized

Question 7

which conditions would make the auditors to give public notice that he/she is no longer associated with the FS?

Answer 7

only after determining that there are persons relying on the information and
only if the client refuses to issue revised FS