17.EVENTS AFTER THE BALANCE SHEET DATE
A post balance sheet event is an event both favourable or unfavourable which occurs
between the balance sheet date and the date on which the financial statements are approved
by directors.
It is an event which warrants an adjustment to the financial statements or an event which
need disclosure in the financial statements but may not result in an adjustment to the
financial statements.
Adjusting events would include such items as:
the valuation of an investment which provides evidence of a permanent loss in value
the insolvency of a debtor.
the discovery of an error that shows that there were errors in the previous year‟s financial
statements.
The following are examples of non adjusting post balance sheet events:
The issue of new shares or debentures.
Loss of fixed assets as a result of a disaster such as a flood or fire.
Opening a new trading activity.
A merger or an acquisition.
The audit objective when reviewing post balance sheet events is to ensure that material
adjusting and non adjusting post balance sheet events are identified and correctly treated
and disclosed in the financial statements.
The initial post balance sheet events review should be one of the last exercises that is
undertaken during the audit.
The procedures undertaken during a post balance sheet events review, require review
and enquiry in respect of events that have occurred since the balance sheet date.
The following audit procedures should be undertaken:
The auditor should review the Cash Book, invoices and bank statements, minutes of
meetings and major contracts to ensure that nothing has occurred since the year end
which should be disclosed or provided for within the financial statements.
The auditor should discuss the situation with management to ensure that all material items have been identified.
The auditor should consider whether the client has effective procedures to ensure that all adjusting and non adjusting events have been identified.
The auditor should read the management minutes of meetings held since the year end and enquire about matters discussed at meetings for which minutes are not yet available.
Before the audit report is signed the auditor should specifically enquire in respect of the
following:
Whether any new commitments, borrowing or guarantees have been entered into.
Whether sales of assets have occurred or are planned.
Whether there has been an issue of new shares or debentures or an agreement to liquidate has been made.