Activity Based Risk Evaluation Model of Auditing

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Events occurring subsequent to balance date

The auditor's report to members is dated as of the date the auditor signs the report. This date indicates to the reader that the auditor has considered the effects on the financial statements and on the audit report of events of which the auditor is aware that have occurred up to the date of the report.

Events occurring between balance date and the date of the audit report are referred to as subsequent events. There are two types of such events that are reported in the financial statements. The first type of event is one that throws further light on conditions existing at balance date. This requires the existing information in the financial statements to be altered including, where applicable, net income. The other type of event is one that creates new conditions as distinct from any that may have existed at balance date. Existing information in the financial statements does not need to be altered; rather additional information relating to the event is included in the financial statements.

Bearing in mind that the later the date of the auditor's report, the greater is the likelihood of subsequent events, it is therefore in the auditor's interest to encourage the client's management to finalize the financial statements as soon as possible after the balance date. It is also in the auditor's interest to perform a review of subsequent events as close as possible to the date of the audit report, in order to gather evidence that is relevant. Matters that an auditor may consider include:

• whether the client is involved in litigation.
• any physical loss suffered by the client after year end.
• any significant decline in realisable values of assets after year end.
• any significant transactions that have occurred since balance date that may impact on the financial statements or otherwise require disclosure.
• any significant contracts or agreements that have been entered into since balance date that may impact on the financial statements or otherwise require disclosure.
• the effect of any major currency realignment after year end.
• the effect of the termination of the operations of any key segment after year end.

In order to form an opinion about subsequent events, evidence is gathered using a combination of the following audit procedures:

• inspection of • correspondence files • minutes of directors' meetings • minutes of meetings of the audit committee • current management accounts • cash flow forecasts • submissions for capital expenditure.
• inquiry of senior management regarding future plans.
• analytical procedures.
• management representation letter.
• legal representation letters.

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