Page 214 - CA Inter Audit PARAM

CA Ravi Taori

QNO-- Date of Issuing FST Vs Date of Providing Audit Report New Course – (S24M)
560.02.30 Bhaskar CNO – SA560.045

As per SA 560, 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, it may have caused the auditor to amend the auditor’s report. In this context, what is
meant by “Date the financial statements are issued”? Can it be later than the date of providing auditor’s
report to the entity?
Answer “Date the financial statements are issued” reflects the date on which the auditor’s report and audited
financial statements are made available to the third parties. The date the financial statements are issued
generally depends on the regulatory environment of the entity.

In some circumstances, the date the financial statements are issued may be the date that they are filed
with a regulatory authority. Since audited financial statements cannot be issued without an auditor’s
report, the date that the audited financial statements are issued must not only be at or later than the date
of the auditor’s report but must also be at or later than the date the auditor’s report is provided to the
entity.

Therefore, “date the financial statements are issued” can be later than date of providing auditor’s report

to the entity.

QNO— Adjusting Event - Out of Court Settlement New Course – (SM25)
560.02.50 Bhaskar CNO - SA560.020
CA PK Jacob is conducting audit of a company for year 2021-22. The company is engaged in export of
ethnic rugs to buyers in Europe. The audit is nearing completion in month of July 2022. However, it
becomes known to the auditor that one of overseas buyers has made a legal claim against the company
on 1st June 2022 for injury caused to a customer of one European buyer due to sub-standard dyes used
in rugs of one lot of order shipped in August 2021. The management of company has decided to agree
to an out of court settlement of Rs.5 crore to protect its reputation. The financial statements of the
company are silent on this issue.

Discuss, how, CA PK Jacob should proceed to deal with above issue.
Answer Adjusting Vs Non-Adjusting Events
Financial statements may be affected by certain events that occur after the date of the financial
statements.
Many financial reporting frameworks specifically refer to such events. Such reporting frameworks
ordinarily identify two types of events:
(a) Those that provide evidence of conditions that existed at the date of the financial statements; and
(b) Those that provide evidence of conditions that arise after the date of the financial statements.
(Other than adjusting)

Case Discussion & Conclusion
In the given case, the auditor has come to know of legal claim against the company before issue of audit
report. It has also come to his knowledge that management of company has agreed to an out of court
settlement of Rs.5 crore. It is an example of subsequent event between the date of the financial statements
and the date of the auditor’s report. It provides evidence of conditions that existed at the date of the
financial statements and requires adjustment in financial statements.

He should ask company management to make necessary adjustment to the financial statements. If
adjustment is not made by management, he should consider impact on auditor’s report.

QNO-- Adjusting Event - Out of Court Settlement (Internal Audit) New Course – (M24M)
560.02.70 Bhaskar CNO – SA560.020

CA J is working as internal auditor in JKL Limited, a non-listed company. The responsibilities of internal
auditor include reviewing financial information and performing detailed tests on transactions and
balances. He is also responsible for compliance with laws, regulations and external requirements.

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