KTBCTCNC1 - Chap7 - subse event)

Events after the reporting date are categorised as either being an adjusting event and a non-adjusting event . An adjusting event provides evidence of conditions that existed at the reporting date. Which of the following should be classified as adjusting event?

• Bankruptcy of a major customer

• Major purchases of assets

• Commencing a court case arising out of events after the reporting period

• Announcing a plan to discontinue an operation

Events after the reporting date are categorised as either being an adjusting event and a non-adjusting event . An adjusting event provides evidence of conditions that existed at the reporting date. Which of the following should be classified as adjusting event?

• Resolution of a court case

• Destruction of inventory after the reporting date by fire

• Major share transactions

• Dividends proposed after the end of reporting period

Events after the reporting date are categorised as either being an adjusting event and a non-adjusting event . An adjusting event provides evidence of conditions that existed at the reporting date. Which of the following should be classified as an adjusting event?

• Discovery of fraud or errors

• Entering into significant commitments or contingent liabilities

• Destruction of inventory after the reporting date by flood

• Purchases of a new building

Events after the reporting date are categorised as either being an adjusting event and a non-adjusting event. Non-adjusting events are not incorporated into the financial statements, although they may be disclosed. Which of the following should be classified as a non-adjusting event?

• A fire destroying some of the company's inventory (the company's going concern status is not affected)

• Sale of inventory held at the end of the reporting period for less than cost

• Discovery of fraud or error affecting the financial statement

• The insolvency of a customer with a debt owing at the end of the reporting period which is still outstanding

Events after the reporting date are categorised as either being an adjusting event and a non-adjusting event. Non-adjusting events are not incorporated into the financial statements, although they may be disclosed. Which of the following should be classified as a non-adjusting event?

• An issue of shares to finance expansion after reporting date

• The bankruptcy of a major customer, with a substantial debt outstanding at the end of the reporting period

• A valuation of property providing evidence of impairment in value at the Statement of Financial Position date

• Discovery of fraud or error affecting the financial statement

Audit procedures for subsequent events should be performed between the date of the financial statements and which date?

• The date the audit work for subsequent events is performed

• The date of approval of the financial statements

• The date of the auditor’s report

• The date the financial statements are issued

You are a member of the statutory audit team working on the financial statements of Windermere Ltd, a nationwide chain of outdoor equipment stores, for the year ended 31 December 2018. The following matters have been brought to your attention: On 1 March 2019 (after the reporting date), there was a fire in one of Windermere’s warehouses, destroying a material amount of inventory. Which of the following is auditor’s responsibilities regarding that subsequent event of Windermere?

• The auditor always has an active duty that he must obtain sufficient appropriate evidence that all subsequent events that require adjustment or disclosure have been identified

• The auditor has no responsibility because this event occurred after the reporting date which is not covered by financial statement

• If the event occurred between the company’s reporting date and the date that the audit report is signed, the auditor has an active duty which means that the auditor must obtain sufficient appropriate evidence that all subsequent events that require adjustment or disclosure have been identified

Which of the following statements correctly describes auditor’s responsibility in relation to subsequent events occurring between the date on which the auditor's report is signed and the date on which the financial statements are issued? 

• Auditor should obtain sufficient and appropriate audit evidence and design audit procedures to ensure that all subsequent events are identified

• Auditor should obtain a list of subsequent events from the directors of Strawberry Co and include these in the written representation letter

• Auditor has no duty to perform any procedures after the date on which the auditor's report is signed and therefore any subsequent events in this period will be dealt with in next year's audit

• Auditor should discuss any subsequent events they become aware of with the directors of Strawberry Co to determine whether the financial statements need amended

Which of the following statements correctly describes auditor’s responsibility in relation to subsequent events occurring after the date on which the auditor's report is signed? 

• Auditor should obtain sufficient and appropriate audit evidence and design audit procedures to ensure that all subsequent events are identified

• Auditor should obtain a list of subsequent events from the directors of audited entity and include these in the written representation letter

• Auditor has no obligation to perform any procedures after the date on which the auditor's report is signed and therefore any subsequent events in this period will be dealt with in next year's audit

• Auditor has no obligation to perform any procedure after the date on which the auditor's report is signed. However, if auditors become aware of any events, they should discuss with directors of audited client.

You are auditing financial statement of Cley Ltd for the year ended 31 December 20X0. During the subsequent events review procedures for Cley Ltd, you have identified that a sales credit notes for a large amount of sales returns, relating to a pre-year-end despatch of inventory, was issued to a customer on 15 January 20X1. Which of the following should be appropriate action for auditor?

• No action is required because this transaction should be reflected in the financial statement of year ended 31 December 20X1

• This is an adjusting event since because the credit note provides evidence of a condition that existed at the year-end i.e. the customer did not accept the goods delivered by Kitty Ltd.

• This is non-adjusting event but need a disclosure in financial statement