Page 141 - CA Final PARAM Digital Book.

Part 1- SA 560

QNO Subsequent Event (Responsibility of Auditor) Old Course – (M08R, N09E, PM17, N20E)
85.000 TITANIUM CNO--SA560.020/SA560.060 New Course –(SM23)
Briefly describe the auditor's responsibility regarding subsequent events.
OR
You are the auditor of PQR Ltd. which is in the business of supplying food products to various airline
companies operating aircrafts in domestic circle only. As per terms of agreement with airlines, the
company need to stock various non- perishable food items for coming one month (average holding of
inventory to the tune of INR 75 Crores). Also, the payment terms have been settled and the company
receives payment in 45 days after the supply of goods. Everything was going-on well till the end of March

2020 when pandemic Covid hit the world and everything came to a standstill. Aviation sector was hit hard
and there were no flights from April 2020 onwards. Consequently, the business of PQR Ltd. also got
severely affected and the scheduled supplies of goods to airlines also were not made. Also, the liquidity
position of airline companies got hit and the scheduled payments were also not received on due dates. As
the auditor of PQR Ltd. what audit procedures would you perform to ensure that all subsequent
events are considered, so that financial statements for the year ended 31.03.2020 represent true
and fair view?
Answer Part I -- Relevant Standards & Laws
▪ AS 4 on " Contingencies and Events Occurring after the Balance Sheet Date"

▪ SA 560, Subsequent Events
Part II -- Requirements of Relevant Standards & Laws
AS – 4
➢ Subsequent Event Definition: - All significant events / favourable or unfavourable / occur
between balance sheet date and date of approval by BOD
• Types of Events: - Events giving evidence regarding conditions existing on balance
sheet date / Events giving evidence on conditions which arose after balance sheet
date
Exceptions to above: - Events required to be adjusted by law / Events affecting
going concern / Events which are significant / material but not requiring adjustment
can be disclosed in notes to accounts

AS 4 on "Contingencies and Events Occurring after the Balance Sheet Date" deals with all
those significant events, both favourable and unfavourable, that occur between the
balance sheet date and the date on which the financial statements are approved by the
Board of Directors in the case of a company and by the corresponding approving authority
in the case of any other entity. As per AS 4, two types of events can be identified:
• those which provide further evidence of conditions that existed at the balance
sheet date; and
• those which are indicative of conditions that arose subsequent to the balance sheet
date.

SA 560
➢ Importance of Subsequent Events: - Auditor should plan and examine subsequent events
and its accounting because there is possibility that some accounting effects are omitted
and examination can help get evidence regarding financial statement items at assertion level
When the auditor draws up his audit plan, checking of subsequent events is an important audit
procedure irrespective of the level of test checks employed for checking of the transactions during
the year. In fact, more detailed check is normally required for subsequent events to confirm certain
assertions contained in the financial statements, e.g., the payment made by debtors after the close
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