Subsequent Events

Cragen and the representatives of Kopi Boss are going to discuss subsequent events in a meeting soon. Elliott and Novak were reviewing the draft plan for this meeting. Below are some of the conversations they had:

Novak: Is the subsequent event review similar to the usual examination of transactions after year-end, Elliott? For example, the confirmation of the cut-off of sales or the collectability of trade receivables.

Elliott: Not really, Novak. the usual investigations of transactions after year-end are implemented as part of the substantive tests of certain account balances, mainly to ensure that transactions are recorded in the correct period, or to evaluate the appropriateness at year-end of the carrying amounts of assets and the adequacy of provisions for warranties. In contrast, the subsequent events review is concerned only with significant events occurring subsequent to the balance sheet date that may require adjustment to or disclosure in the financial report.

Novak: I had never been involved in an audit where there was a subsequent event arising after the date of the audit report, so I don't really know what I am supposed to do in these circumstances.

Elliott: I understand how you feel, Novak. There is a first time for everything.

Novak: I also have trouble distinguishing the two types of subsequent events in AASB 110and therefore has some trouble applying ASA 560.

Elliott: Don't worry Novak, I'm here to help. There are three key datesthat are important when considering subsequent events. First, the date that the financial report is approved. Next, is the date of the auditor's report. Finally, the date the financial report is issued and available to third parties.

Novak: That is good to know, Elliott. What do we have to do to identify subsequent events?

Elliott: The nature of the specific procedures performed will really depend on the client's circumstances. We have to consider, among other things, the procedures that management has established to identify material subsequent events and the volatility and strength of the client's business. We would also have to consider the presence of known problems that increase the client's exposure to significant changes in financial position and operations.

Novak: Let me think about some procedures we can use when conducting the subsequent event review and I will get back to you with a draft plan.

Elliott: Sure thing, Novak. We can continue our discussion soon.

Based on the conversation that Elliott and Novak had in the "Subsequent Events" section of the case study, provide two (2) procedures Novak can use when conducting the subsequent event review at Kopi Boss.

First procedure for subsequent event review
Second procedure for subsequent event review