AUD 1.10 - Subsequent Events

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  1. Define Subsequent Event
    An event or transaction that occurs after the balance sheet date but before the FS are issued or are available to be issued.
  2. Define Subsequent Period and what is the significance for the auditor?
    • The period between the date of the FS and the date of the auditor's report.
    • The auditor has an active responsibility to investigate certain subsequent events.
  3. The auditor believes that the FS need to be revised to reflect a subsequent event, and management does not make the revision. Does this affect the Opinion and, if so, how?
    The auditor should express a qualified or adverse opinion.
  4. What is the difference between a recognized vs nonrecognized subsequent event?
    • IF the event initially occurred prior to the balance sheet date, and a change occurred after the balance sheet date but before the FS were issued that monetarily affects (requires a journal entry) the FS,
    • THEN the event or transaction is recognized
    • ELSE it is nonrecognized (significant events that initially started after the BS date, but require a footnote).
  5. Which of the following are recognized vs nonrecognized subsequent events? (1) sale of bond or capital stock, (2) settlement of litigation, (3) loss of plant or inventory due to fire or natural disaster, (4) business combination
    • (1) nonrecognized
    • (2) recognized
    • (3) nonrecognized
    • (4) nonrecognized
  6. Which of the following are recognized vs nonrecognized subsequent events? (1) loss on an uncollectible receivable, (2) settlement of litigation that arose after the balance sheet date, (3) entering into a significant commitment
    • (1) recognized
    • (2) nonrecognized
    • (3) nonrecognized
  7. Which of the following are recognized vs nonrecognized subsequent events? (1) a customer files bankruptcy that affects collection of A/R, (2) entering into a contingent liability, (3) changes in the fair value of assets/liabilities, (4) changes in foreign exchange rates
    • (1) recognized
    • (2) nonrecognized
    • (3) nonrecognized
    • (4) nonrecognized
  8. A public company must evaluate the effects of events or transactions through which date?
    The date that the FS are issued.
  9. A non-public (private) company must evaluate the effects of events or transactions through which date?
    The date of the balance sheet
  10. When are the FS considered to be issued?
    When they have been widely distributed to FS users in a form and format that complies with GAAP
  11. When are the FS considered to be available to be issued?
    • When they are in a form and format that complies with GAAP and
    • All approvals for issuance have been obtained.
  12. True / False: When an entity reissues its FS, the entity should make adjustments for events that occurred between the date the original FS were issued and the date that the FS were reissued.
    • Partially False
    • No adjustments are made unless an adjustment is required by GAAP or other regulatory requirement
  13. What are the disclosure requirements for subsequent events?
    • Nonissuers: Must disclose the date through which subsequent events have been evaluated and whether that is the date of FS issue or date FS were available for issue.
    • Issuers: No date disclosure is warranted.
    • Nonrequired Events: must be disclosed if the it is necessary to keep the FS from being misleading. It must include the nature of the event and an estimate of the financial effect or a statement that no estimate can be made.
    • Pro forma FS showing the effect may be presented.
  14. The entity revised their FS to correct an error. These must now be treated the same as [what type] of FS?
    Re-issued
  15. What procedures should the auditor follow during the subsequent period?
    • P-R-I-M-E
    • Post-balance sheet transactions = review for proper cutoff
    • Representation letter = a letter from management regarding whether any events occurred during the subsequent period that require adjustments
    • Inquiry of the client's legal counsel and of management regarding events
    • Minutes = review of stockholders, BoD, committee meetings during the subsequent period
    • Examine = review the latest available interim FS (monthly) and compare them with the FS under audit
  16. The auditor is responsible to make any inquiries and to perform further auditing procedures up to which date?
    The date of the auditor's report
  17. True / False: The auditor is responsible to ensure no significant events or transactions have occurred after the auditor's report date
    • False
    • Responsibility ends at the auditor's report date; however, if the auditor becomes aware of an event that occurred prior to the report date, professional judgment on disclosure must be applied.
  18. When is a dual date used for non-issuers?
    If adjustment OR disclosures are made after the original date of the auditor's report
  19. When is a dual date used for issuers?
    • If disclosures are made after the original date of the auditor's report.
    • If adjustments to the FS are made without a change in disclosures, the original date of the auditor's report is used.
  20. The auditor discovers and confirms an event that occurred after the date of the audit report that materially affects the audit report and other persons' reliance on it (we missed something during the audit). What is the auditor's responsibility and procedure?
    • Either...
    • (1) Provide notification that the FS and auditor's report cannot be relied on.
    • (2) Advise the client to issue revised FS along with a new audit report, describing the reasons for revision.
    • (3) Advise the client to make the necessary revisions and disclosures in any imminent FS, with an auditor's report for a subsequent period.
  21. Define dual dating
    The addition of a date after the original auditor's report to extend responsibility only for the particular subsequent event.
  22. The auditor discovers an event that occurred after the date of the audit report that materially affects the audit report and other persons' reliance on it. What does the auditor do if the client refuses to make or issue appropriate changes?
    • (1) Notify each member of the Board of Directors of such refusal, plus inform them that the auditor will take additional steps to prevent further reliance on the auditor's report and the FS
    • (2) Inform the client that the auditor's report must no longer be associated with the FS
    • (3) Inform the following that the auditor's report should no longer be relied on...
    • ** regulatory agencies having jurisdiction over the client
    • ** persons known or likely to rely on the FS
  23. The auditor discovers an event that occurred after the date of the audit report that materially affects the audit report and other persons' reliance on it. The client refuses to cooperate with attempts to confirm the event. What should the client do?
    Disclose as if confirmed, however the statement should contain words to the effect that information has come to the auditor's attention and if true, their report should no longer be relied on.
  24. What is the implication if the a subsequent event occurs, the client fixes it, and the auditor adjusts the date of the original auditor's report (instead of dual dating)
    • If a dual date is used, the auditor's responsibility is extended only for that one issue.
    • Using a single date extends the auditor's responsibility for all subsequent events to this later date.

Card Set Information

Author:
BethG
ID:
332112
Filename:
AUD 1.10 - Subsequent Events
Updated:
2017-06-20 14:14:16
Tags:
audit AUD
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Description:
Becker Review 2017
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