Auditing Case – Subsequent Events Procedures
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DC2: Subsequent Events Procedures
The purpose to review the subsequent events is: to either adjust or disclose the certain material events that occur after the balance sheet date but before the end of the field work. The postaudit review period ordinarily ends when field work is completed, February 20. The auditor, however, is responsible for disclosure of any material event of which he is aware until the delivery of his report, March 12. His report should be dated February 20, the date of completion of field work.
Some subsequent period audit procedures are part of a regular audit program. Procedures are carried out for determining cut-off and proper valuation of balance as of balance sheet date. Specific subsequent period audit procedures are designed to gather evidence on the two types of subsequent events.
If there is any transaction involving material amounts occurred since the balance sheet date, the programme i would follow to determine that will be the client approval of adjusting entries. Because the financial statements, including note disclosure, are the responsibility of management. Any adjustments uncovered in the audit will be presented to the auditee so that formal entries can be made to the accounting records. Management is responsible to approve the wording of note disclosure. Audit tests provide a basis for deciding if unadjusted errors are material. Unadjusted errors need to be aggregated in various ways to see if they total to a material amount.
In preparing the audit program, the auditor considers the postaudit review as a continuation of the regular audit and as in a continuing audit engagement, all audit steps may not be necessary. The suggested postaudit program follows:
Review all books of original entry for unusual transactions to February 20, the date of the end of field work, taking care to see that an accounting has been made for the serial numbers of all vouchers and for all check numbers.
Review corporate minutes of directors and shareholders to the close of field work.
Obtain letters from companys legal counsel with respect to developments of any contingent liabilities, together with an opinion as to the outcome of any pending litigation.
Secure a representation letter from responsible company officers that there have been no material events or transactions subsequent to the audit date which might have a material effect on the audited financial statements.