Page 146 - CA Final PARAM Digital Book.

▪ SA 560, Subsequent Events
▪ AS 4 “Contingencies and Events occurring after the Balance Sheet Date”
▪ AS 29 "Provisions, Contingent liabilities and Contingent Assets"
Part II -- Requirements of Relevant Standards & Laws
AS 4-
➢ Conditions Exiting at B/S Date: - If events occurring after b/s date provide additional info
relating to conditions which existed on B/s date then adjustments should be done to assets
& liabilities
As per AS 4, adjustments to assets and liabilities are required for events occurring after the balance
sheet date that provide additional information materially affecting the determination of the
amounts relating to conditions existing at the balance sheet date.

AS 29 -
➢ Future Events: - Future events affecting amount required to be settled should be reflected
in amount of provision
Similarly, as per AS 29 "Provisions, Contingent liabilities and Contingent Assets", future events that
may affect the amount required to settle an obligation should be reflected in the amount of a
provision where there is sufficient objective evidence that they will occur.

SA 560 -
➢ Duty of Auditor: - Auditor should obtain S&A evidence that effect of subsequent events
is taken as per applicable FRF requiring adjustments or disclosures
As per SA 560 “Subsequent Events”, the auditor should assure that all events occurring subsequent
to the date of the financial statements and for which the applicable financial reporting framework
requires adjustment or disclosure have been adjusted or disclosed.
Part III – Case Discussion
➢ Long Pending Salary Negotiations / Arrears of Salary is finalised on 30-04-17 / Audit
Report to be Signed on 31-05-17 / It is a subsequent event identified before signing audit
report, which needs adjustment in balance sheet
In the instant case, the amount of Rs1.50 crores is a material amount and it is the result of an event,
which has occurred after the Balance Sheet date. The information has become known to the auditor
before the date of issue of the Audit Report and Financial Statements.

Part IV -- Conclusion
➢ Long Pending Salary Negotiations / Conditions exist as on balance sheet date / AS 4 & AS
29 require provisioning of Rs 1.5 Cr in current year / Request Mgt to adjust amount / If
Mgt doesn’t accept then auditor should qualify audit report
It will be observed that as a result of long pending negotiations a sum of Rs 1.50 cores representing
arrears of salaries of the year 2015-16 and 2016-17 have not been included in the financial
statements. It is quite clear that the obligation requires provision for outstanding expenses
as per AS 4 and AS 29.
The auditor has to perform the procedure to obtain sufficient, appropriate evidence covering the
period from the date of the financial statements i.e. 31-3-2017 to the date of Auditors Report i.e..

31-05-2017.
So, the auditor should request the management to adjust the sum of Rs 1.50 crores by
making provision for expenses. If the management does not accept the request the auditor
should qualify the audit report.
Author’s Note

Here Successful Negotiation doesn’t mean, company doesn’t have to pay. It means company has to pay
only 1.5 crore because of successful negotiations.

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