welcome back now in our final segment what we'd like to do is cover two other
important areas
we're going to look at subsequent events and how does that impact
what we're gonna be doing and then other information
that's included in the basic financials what do we do with that was our
responsibility how do we report on that except
so these are that last two topics that we're going to spend some time on to
make sure that you're well prepared for
any issue that might appear on your exam so let's take a look at
subsequent events let's highlight events occurring
after your aunt subsequent events
Roman numeral one go to the letter A and highlight recognized
type 1 offense conditions existing on or before the balance sheet date
and out in the margin after you highlighted that
put a dollar sign recorded dollars are recorded
because you're looking back but that in brackets so
there was a lawsuit it was in effect as of December 31st
nobody know exactly how much you win or lose early January
a settlement arose for twenty million dollars that's the perfect amount to
book back
in December let's go to the letter B on recognized tight two events
conditions existing after the balance sheet date
I don't have to you highlighted that out on the margin put
footnote looking forward and what's the difference between these two
well again if you go back up to number one its on or before
and underscore that while NP its
after an underscore that that's the distinction
one's looking back one's looking forward so if you'll notice that are passkey
recognized items requires financial statement just meant
non recognize type 2 may
require a footnote disclosure all right let's go on
we're going to take a look at auditors responsibility
for subsequent events highlight that and by the way what I'd like to do
is literally can squeeze it in there I want you to put a general rule
a general rule and underscored CPA
responsible and the narrow CPA responsible
up to dade I'll audit report
CPA responsible with an arrow up to
data report notice it's that day up the report and we're gonna talk a little bit
more about that as we go forward
so auditor responsibility for subsequent events
I the second sentence i'd like you to highlight during this period which is
typically like January
February while you're still finishing up the audit on last year December 31st
statements
during this period the auditor has an
active responsibility to investigate certain subsequent events
so would you please now after highlighted that
underscore active responsibility to investigate
certain subsequent offense and out on the margin
put Doering fieldwork right next to it during fieldwork
there's an active responsibility to investigate
certain subsequent events now what we're gonna do is introduce you to another
little learning tool
demonic we're gonna say the prime test to perform
the first is a post balance sheet transactions post balance sheet
transactions
high like that and that's the letter P the next bubble is
are and thats representation letter should be obtained from management
that's the are
the eye is make enquiries talk to people
on the next page the next bubble is the am
and thats minutes at the stockholders directors and other committees meetings
should be read during the subsequent period
and the E is examined the latest available
in terms statements compare them to the financials under
audit those are the prime test now why are you doing a post balanchine review
why are you looking at the next intro
because first all a lotta times companies will not want to take an
impairment
at December 31st all that's gonna kill the numbers Wall Street is expecting bad
news
we don't wanna write this off we don't want to show these bad items
so they hide them from you but they know they've got to be written off but
they'll write them off next january next february
because then it's like a whole year before really people took an annual
statements again
well you in January should be looking at what activity are they doing then
does anything have any possible link back to December 31st
write-downs write-offs on Collectibles settlement of lawsuits et cetera
then in addition to that they may be releasing monthly
or maybe quarterly financial data and
you should look at that if you still haven't finished your field work because
maybe at the end to the next quarter
and you're still doing here and work but they're getting ready to release the end
of the first quarter
New Year you're doing the all year you should look to see if there are any
unusual items that suggests that maybe they tried to sneak something by you
and then I'll try to get into next year that's the whole purpose of this
why do you read the minutes because behind closed doors
the Board of Directors will say a lot of things that they are not gonna wanna
have released to the public I always like to equate this to the
circumstances that may be you experience with the significant other
it's the weekend you're looking to a fun weekend you got some plans
and they have other plans and now all of a sudden it's what have you
has already committed to go to a friend's house in a friend's party
the other one %uh view would rather stay home and chill out well
the whole ride over is ugly isn't it one if he was complaining I can't believe we
have to do this we always have to go to your friends why can't we just spent
some time being quiet and have a nice time
I don't even like them that's the gap conversation its aggressive it's ugly
but as soon as you get to the house and you ring the doorbell what do you do
hi although we wouldn't miss this for all the tea in China
right we put on a great public place but behind closed doors
boy are we letting people know so the board of directors could be saying
we should settle that lawsuit is going to be at least fifty million if we don't
settle now
we have to stop that area over there we have to stop this our products have
problems et cetera
so worried that stuff over it could give you some very important insights
I let's go back to our materials letter t let I like this whole paragraph in
and title auditor's responsibility after the original date
up the auditor's report the auditor has no active responsibility
to make any enquiries or to perform any further audit procedures
to discover subsequent events after the original date of the auditor's report
however it the auditor becomes aware of any information relating to subsequent
events
before the report release date the auditor should consider whether it is
necessary to adjust the financial statements or the related
disclosures now in our past keels know it says
if the auditor believes the financials need to be revised
to reflect subsequent events and management does not
make the revision the auditor should qualify or have an adverse opinion
why is that put down in the margin gap
issue that's a gap issue right
something's missing some things not there as a gap problem
not a audit problem you know what's wrong so therefore to gap problem
are report date that's highly
effort just minutes or disclosures are made after
the original date up the auditor's report the auditor may
do all day the report to extend responsibility
only for the particular subsequent event
the original data the report is retained for the rest
the financial statement now before you go any further and we're still the
highlight the next two items
underscored all day the report to extend responsibility
only for the particular subsequent event
and out at the margin there is your dual dating make a note of that
and you can see an example to all dating we have January 21st
except for footnote such-and-such which is through February 3rd
now letter be alternatively a later date may be used
for the entire report but this extends the auditor's responsibility for
all subsequent events to this later date
now no with international like you read this with me I'm gonna go down
to the second line way over to the right the auditor should provide management
with the new report dated no earlier
then the day approval up the amended financial statements
in such circumstances the auditor would perform procedures designed to obtain
evidence that all events up to the new report date
that may require adjustment or disclosure in the financials
have then identified so there's a little bit more responsibility on the
international standard
I let's go to
just page and here's a nice example
let's say that we're going to do an audit which is %uh the company that has
a December 31st year and
and the report will be dated February 15 June we going to do something from work
and we kinda wrap it up in October
we come back just before year end to do our cut-offs
and then highlight this january 15 to February 10
we're going to do our year-end work and I can i watch a highlight your and work
including your prime
test and the note also even though you've highlighted this
underscore the word responsible and their also note that your intent is the
date
the auditor's report so your responsibilities to the dade
up the auditor's report as we mentioned earlier now on February 10
from that point on auditor is not responsible for any subsequent events
highlight that and then on february 15
the report is issue member the report date is the 10
but it actually is handed to them on the 15 and that's when you obtain
management representation letter which was dated February 10
I let's move on Roman numeral two on the next page subsequent discovery a fax
after the report release date and let's put down
on the margin we missed something
I witnessed auditor action
upon discovery after issuance of the report
information confirmed by the water that materially affects the report
and other persons relying on it the auditor should advise the client to
immediately
disclose the new information and its impact on the financial statements to
persons currently rely more likely to rely on the statements
this may be accomplished by so what we have to do
so backup letter a highlight auditor action
and let's go down and highlight one two and three one
advise the client to issue revised financials
along with new auditor report describing the reason for the revision
number two advise the client to make necessary disclosures
and revisions to any in it financial statements
accompanied by the auditor's report for the subsequent period or number three
highlight if the effect on the financials cannot be determined
on a timely basis providing notification that the financials and the auditor's
report
should not be relied upon alright
well that's what we're supposed to do let's go to the one problem letter B
highlight get the client refuses to follow any of those procedures
highlight if the client refuses to proceed as above
the auditor should notify each member of the board of directors
such refusal and up the audit I love the fact that the auditor will take
additional steps to prevent
for the reliance on the auditor's report and the financials
so what additional steps are to prevent further Alliance
underscore after you highlighted
underscore prevent for the reliance and then put down
equals dare daar
inaction quotes dare them to fix it dare
them to fix it what is dare them well
out on the margin D is disassociate the
a as alert agencies and the are
is relying parties and that's essentially what AB and C are gonna say
that you're highly
notify the client that the auditors report must no longer be associated with
the financials
be notified if applicable any regulatory agencies having jurisdiction over the
client that the auditors report should no longer be relied on
and letter C notify persons known to be relying
or likely to be relying on the financials that the auditors report
should no longer be relied upon
I one more problem dealing with this let's go to Roman numeral 3 on the next
page
highlight omitted audit procedures discovered
after submission up the audit report now we did miss something
here let's put a little note in the margin we forgot to do it
we forgot to do it so what's the auditors actions
let's highlight number one and number two number one the auditor should a
should determine whether other audit procedures
were adequate to compensate for the omitted procedure
if so no action no additional action required now after you've highlighted
that
underscore other audit procedures were adequate get back to cure the problem
that's what are those
boy did we get lucky number two
but I like if on the other hand the omitted audit procedures
impair the auditors ability to support the previously issued
opinion and there are people rely more likely to rely on the report
then the auditor should probably undertake to apply the omitted procedure
or alternative procedure underscore after you highlighted that
probably undertake to apply the omitted procedure
and out in the margin a little phrase to help you remember that
better late than ever so even though it's late it's after the fact it's
better late to do it now
to make sure you're comfortable than ever okay
without we're gonna jump to the second item that we wanted to cover in this
last segment
which is reports and other information