Subsequent events

Learning objective

CAS 560 Subsequent Events requires the auditor to consider material events that they may discover after the end of the financial period. In this assignment, you will apply the requirements of CAS 560 to a number of different scenarios that could arise during the audit of Alpine Bags.

The end of the financial year is December 31, 2023. The audit report was signed on February 15, 2024. The financial statements were approved by the board of directors on February 15, 2024, and released to the public that same day, along with the auditors report.

Required

You have been given a number of independent situations below. Describe what action should be requested of the client by the auditor in each of the following situations. Potential options include:

requesting that the client make a disclosure in the notes to the accounts

requesting that the client make an adjustment (name the account)

advising the client of a change in audit opinion (what sort of opinion should be given) doing nothing Explain your answer. If requested by your instructor, include an accounting and/or auditing standard and paragraph reference to support your answer.

(a) You discover on January 15, 2024, that Backpackz, a major customer, has become insolvent and Alpine Bags will not be able to collect amounts owing to it.

(b) You discover on February 10, 2024, that a customer is threatening to sue Alpine Bags after they slipped and fell inside an Alpine Bags retail outlet. The accident occurred in November 2023.

(c) On January 31, 2024, the federal government released a draft paper proposing an increase in import duties on all goods from China of 150 percent starting in July 2024. This increase in duties would increase the price of Alpine Bags backpacks significantly above the prices of competitors.

(d) At the official launch of the financial statements, you overhear the Financial Controller discussing a situation where an employee has been stealing cash from Alpine Bags.

(e) In March 2024, you read a newspaper article about Alpine Bags possibly purchasing the backpack company Groovy Bagz (a competitor)

	Auditor should:	Explanation	Reference (only complete if requested by Instructor)
(a)
(b)
(c)
(d)
(e)

Consider what additional information might be required to be able to conclude on the appropriate treatment of these subsequent events. What would the most reliable source for this additional information be?