What are subsequent events?
ISA 560 splits the auditor's work into two time windows with different obligations. The first window runs from the balance sheet date to the date of the auditor's report (ISA 560.6). During this period, the auditor must perform procedures designed to identify events that require adjustment or disclosure. ISA 560.7 specifies minimum procedures: obtaining and reading the latest interim financial statements, inquiring of management about new litigation or commitments, reading minutes of meetings held after the balance sheet date, and reviewing correspondence with legal counsel and regulators.
The second window runs from the auditor's report date to the date the financial statements are issued (ISA 560.14). During this period, the auditor has no obligation to perform additional procedures. But if the auditor becomes aware of a fact that would have caused the report to be modified, the auditor must discuss the matter with management and determine whether the financial statements need amendment.
The practical connection to IAS 10 matters. IAS 10.3 defines adjusting events as those providing evidence of conditions that existed at the balance sheet date. Non-adjusting events are those indicative of conditions that arose after the balance sheet date. The auditor's job under ISA 560 is to determine which category applies and to evaluate whether management has accounted for them correctly.
Key Points
- The auditor's responsibility runs until the report date, not the date of the financial statements. ISA 560.7 procedures must cover the entire period up to the signing of the auditor's report.
- Two categories under IAS 10: adjusting events (conditions existed at balance sheet date, requiring financial statement adjustment) and non-adjusting events (conditions arose after, requiring disclosure only if material).
- Missing a significant subsequent event is one of the most common reasons for audit report reissuance, making timely and thorough procedures critical.
- ISA 560.14 creates a post-report obligation: if the auditor becomes aware of facts after the report date but before the financial statements are issued, the auditor must act.
Why it matters in practice
Teams frequently perform ISA 560.7 procedures too early in the audit process — often in January for a December year end — and fail to update them close to the auditor's report signing date. ISA 560.7 requires the procedures to cover the period "up to the date of the auditor's report." A three-month gap between the procedures and the signing date leaves the window unmonitored, creating a risk that significant events are missed entirely.
Consider a logistics company with a 31 December reporting date and a report signing scheduled for late March. Review of board minutes reveals two events: a warehouse fire in January (a new condition, no pre-existing deficiency) and a major customer entering insolvency in February (a customer that had been experiencing cash flow difficulties throughout Q4, with overdue balances flagged in November). The fire is non-adjusting — it requires disclosure but no adjustment. The insolvency is adjusting — the customer's financial difficulties existed at the balance sheet date, and the expected credit loss provision must be revised in the year-end financial statements.
The classification decision between adjusting and non-adjusting events is frequently under-documented. Teams record the event but do not record why they classified it in one category rather than the other. ISA 560.9 requires sufficient evidence to support the classification, which means documenting the condition that existed (or did not exist) at the balance sheet date.
Key standard references
- ISA 560.6: The auditor's responsibility for events between the financial statement date and the auditor's report date.
- ISA 560.7: Minimum subsequent events procedures — reading interim financials, inquiring of management, reading board minutes, reviewing legal correspondence.
- ISA 560.9: Requiring sufficient appropriate evidence to support the classification and accounting treatment of subsequent events.
- ISA 560.14: Obligation when the auditor becomes aware of facts after the report date but before the financial statements are issued.
- IAS 10.3: Defining adjusting events (conditions existed at year end) and non-adjusting events (conditions arose after year end).
Related terms
Related reading
Frequently asked questions
What is the auditor's responsibility for events after the report date?
ISA 560.14 creates a separate obligation for the period between the auditor's report date and the date the financial statements are issued. The auditor has no duty to perform additional procedures during this window. However, if the auditor becomes aware of a fact that would have caused the report to be modified, ISA 560.14 requires the auditor to discuss the matter with management and determine whether the financial statements need amendment.
What is the difference between adjusting and non-adjusting events?
IAS 10 distinguishes two categories. Adjusting events provide evidence of conditions that existed at the balance sheet date — they require changes to the amounts in the financial statements. Non-adjusting events are indicative of conditions that arose after the balance sheet date — they require disclosure only if material, but no adjustment to the numbers. The classification turns on whether the underlying condition pre-dated the reporting date.