Page 145 - CA Final PARAM Digital Book.

➢ After applying the conditions given in SA 560, Amudhan & Co. can issue new audit report
subject to date of audit report which should not be earlier than the date of approval of the
amended financial statements.

QNO Subsequent Event-- After Audit Report-- Financial Statements Amended Old Course – (N21R)
87.500 TITANIUM CNO--SA560.100
The audit report of Kolsi (P) Ltd. for F.Y. 2020-21 was issued by Bishnoi & Co. on 25th July, 2021. However,
a case was filed against Kolsi (P) Ltd. on 4th August, 2021, with the Civil Court, with respect to an incident
caused in its factory on 17th January,2021, the outcome of which may result in paying heavy penalty by
Kolsi (P) Ltd.
Mr. Raj Bishnoi, the partner of Bishnoi & Co., discussed the said matter with the management and it was
determined to amend the financial statements for F.Y. 2020 -21.
Further, Mr. Raj inquired how the management intended to address the said matter in the financial
statements to which he was told that the said matter was going to be disclosed as a “Contingent Liability

for a Court case” to the foot note in the balance sheet with no additional disclosures.
The management told Mr. Raj that such disclosure was enough as he would further going a description of
the said court case and its outcome in the ‘Emphasis of Matter’ paragraph in his amended audit report.
In the context of aforesaid case scenario, please answer the following questions:-
(a) Whether Mr. Raj on behalf of Bishnoi & Co., has properly adhered to his responsibilities in accordance
with SA 560, on becoming aware of the court case filed against Kolsi (P) Ltd.?
(b) Whether the contention of management of Kolsi (P) Ltd. is valid with respect to the disclosure of the
court case in the financial statements?
Answer As per SA 560, ‘Subsequent Events’, the auditor has no obligation to perform any Audit procedures
regarding the financial statements after the date of the auditor’s report. However, when, after the
date of the auditor’s report but before the date the financial statements are issued, a fact becomes
known to the auditor that, had it been known to the auditor at the date of the auditor’s report, may
have caused the auditor to amend the auditor’s report, the auditor shall:

(1) Discuss the matter with management and, where appropriate, those charged with governance.
(2) Determine whether the financial statements need amendment and, if so,
(3) Inquire how management intends to address the matter in the financial statements.

In the given case, on becoming aware of the court case filed against Kolsi (P) Ltd., Mr. Raj discussed
the said matter with the management and it was determined to amend the financial statements. Also,
he inquired how the management intended to address the said matter in the financial statements.

However, If management does not take the necessary steps to ensure that anyone in receipt of the
previously issued financial statements is informed of the situation and does not amend the financial
statements in circumstances where Mr. Raj (hereinafter referred as ‘the auditor’) believes they need
to be amended, the auditor shall notify management and, those charged with governance (unless all
of those charged with
governance are involved in managing the entity), that the auditor will seek to prevent future reliance
on the auditor’s report. If despite such notification the management or those charged with
governance do not take these necessary steps, the auditor shall take appropriate action to seek to
prevent reliance on the auditor’s report in accordance with SA 560.

QNO Subsequent Event (Salary Case) Old Course –(N10E, PM17, M18M)
88.000 TITANIUM CNO -- Unique
A Co. Ltd. has not included in the Balance Sheet as on 31-03-2017 a sum of Rs 1.50 crores being amount in
the arrears of salaries and wages payable to the staff for the last 2 years as a result of successful
negotiations which were going on during the last 18 months and concluded on 30-04-2017. The auditor
wants to sign the said Balance Sheet and give the audit report on 31-05-2017. The auditor came to know
the result of the negotiations on 15-05-2017. Advise.

Answer Part I -- Relevant Standards & Laws

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