803 Subsequent Events
803.1 SAS No. 1 (AU 560), Subsequent Events,
defines the types of subsequent events the auditor should evaluate and
specifies the procedures that should be performed to determine the
occurrence of such events.
. FASB ASC 855-10 (formerly SFAS No. 165, Subsequent Events) includes accounting and disclosure standards for subsequent events.
803.3 FASB ASC 855-10-50-1
(formerly Paragraph 12 of SFAS No. 165) requires reporting entities to
disclose the date through which subsequent events have been evaluated
and whether that date is the date the financial statements were issued
or were available to be issued.
- That disclosure is required regardless of whether the reporting entity
- recognizes or discloses a subsequent event in its financial statements.
- CIRAs will evaluate subsequent events through the date that the
- financial statements are available to be issued (FASB ASC 855-10-25),
- i.e., when they are complete in a form and format that complies with
- GAAP and all approvals necessary for issuance have been obtained. Often,
- this will be the date of the auditor's final conference with the CIRA
- when proposed adjustments to the financial statements are agreed upon.
803.4 FASB ASC 855-10-20
notes that subsequent events are events or transactions that occur
subsequent to the balance sheet date but before financial statements are
available to be issued.
The period within this time is called the subsequent events period, and the audit procedures performed specifically to search for material events in this period are referred to as the subsequent events review. (See the discussion beginning at paragraph 803.8.)
803.5 The auditor's report is
dated no earlier than the date on which the auditor has obtained
sufficient appropriate evidence to support the opinion.
- This includes evidence about
- subsequent events, so the auditor's report date cannot be earlier than
- the date of management's subsequent events evaluation note. The AICPA
- Technical Practice Aid, Auditor Responsibilities for Subsequent Events (TIS 8700.02)
- notes that, in most cases, the date of management's subsequent events
- evaluation note will be the same date as the auditor's report.
- Furthermore, management is required to make specific representations
- relating to information concerning subsequent events, and the date of
- the management representation letter should be the same as the date of
- the auditor's report. Therefore, the subsequent evaluation note date,
- the management representation letter date, and the auditor's report date
- generally will be the same. See discussion on coordinating these dates
- at paragraph 811.6.
803.6 In addition, it is ordinarily expected that the date of the auditor's report will be close to the report release date
- . If there are delays in releasing
- the report, auditors should consider the need to apply additional
- subsequent events review procedures and whether they should date the
- auditor's report as of the completion of that review.
803.7 Many firms adopt a policy
about when to date their auditor's report if there is a delay in
releasing the report (that is, how long of a delay makes it necessary to
redate the report). A decision to redate the report should result in
extending the subsequent events review to the later date
- Auditors should consider covering
- that matter in their firm's quality control policies and procedures.
- Dating of the auditor's report is discussed beginning at paragraph 811.6.
Subsequent Events Review Procedures
803.8 Some subsequent events may
be discovered as a result of audit procedures applied for specific
financial statement components (for example, considering the impairment
- Other procedures are performed
- specifically to search for material subsequent events. They include
- reading minutes of meetings held through the date of the auditor's
- report; scanning cash receipts and disbursements for the subsequent
- period; reading any interim financial statements or financial reports
- prepared in the subsequent period and investigating any unusual
- fluctuations; and inquiring of management about the existence of
- significant subsequent events. The lawyer's response (see section 801) and the management representation letter (see section 806)
- may also provide evidence of, or representations about, the existence
- of significant subsequent events. The auditor would apply any additional
- audit procedures necessary to follow up on material subsequent events
Subsequent events review procedures should cover a period as close as
possible to the date the financial statements are available for
issuance. In other words, if the auditor wraps up fieldwork but cannot
date his or her report because additional procedures must be performed
- such as preparing financial
- statements or finalizing the review of the audit documentation, then
- subsequent events procedures should continue to be applied until the
- date the financial statements are available to be issued. If there are
- delays in releasing the financial statements, auditors should consider
- the need to apply additional subsequent events review procedures.
803.10 Also, as mentioned in paragraph 801.9, the lawyer's letter should have an effective date that is as close as possible to the audit report date
- (for example, generally within about two weeks of the report date). The
- management representation letter should be dated as of the audit report
- date (see paragraph 806.12).
Subsequent Events Occurring After the Date of the Report
803.11 Subsequent to the date of
the auditor's report, the auditor may become aware of facts that existed
on that date that might have caused him to believe information supplied
by the association was incorrect, incomplete, or otherwise
unsatisfactory had he then been aware of them.
In such circumstances, the auditor should consider the guidance in SAS No. 1 (AU 561), Subsequent Discovery of Facts Existing at the Date of the Auditor's Report, in determining an appropriate course of action.
803.12 The guidance in SAS No. 1 (AU 561) can be summarized as follows:
- a. If the information that the auditor becomes aware of is of such a
- nature and from such a source that he would have investigated it had it
- come to his attention during the engagement, he should investigate it as
- soon after it comes to his attention as is practical.
- b. If, after investigation, the auditor determines that (1) his report
- or the financial statements would have been affected if the information
- had been known to him at the date of his report and (2) he believes
- there are persons currently relying on, or likely to rely on, the
- financial statements who would attach importance to the information, he
- should advise his client to make appropriate disclosure of the newly
- discovered facts and their impact on the financial statements to persons
- who are relying on the financial statements and the related auditor's