Module: | Statutory Audit, NFRA & ICAI Standards
Q63: Consider the following statements regarding the auditor's responsibilities for Subsequent Events under Standard on Auditing (SA) 560:
1. The auditor has an active duty to perform audit procedures designed to obtain sufficient appropriate evidence that all material events occurring between the date of the financial statements and the date of the auditor's report have been identified.
2. The auditor has an active, ongoing obligation to perform audit procedures regarding the financial statements even after the auditor's report has been formally issued to the shareholders.
3. If, after the financial statements have been issued, a fact becomes known to the auditor that existed at the date of the auditor's report and would have caused an amendment to the report, the auditor must discuss the matter with management.
Which of the above statements is/are incorrect?
2. The auditor has an active, ongoing obligation to perform audit procedures regarding the financial statements even after the auditor's report has been formally issued to the shareholders.
3. If, after the financial statements have been issued, a fact becomes known to the auditor that existed at the date of the auditor's report and would have caused an amendment to the report, the auditor must discuss the matter with management.
Which of the above statements is/are incorrect?
✅ Correct Answer: B
🎯 Quick Answer:
B. Only 2 is incorrect.Structural Breakdown: Statement 1 is correct; the auditor must actively hunt for subsequent events right up to the day they sign the audit report.
Statement 2 is incorrect; SA 560 explicitly states that the auditor has NO obligation to perform any audit procedures regarding the financial statements after the date of the auditor's report.
Statement 3 is correct; while they don't have to actively hunt for new facts post-issuance, if a massive error falls into their lap (passive discovery), they must react by discussing it with management and potentially issuing a revised report.
Historical/Related Context: The standard balances the need for accurate reporting with the reality that an audit must eventually conclude.
Without the cutoff at the auditor's report date, an audit would be an infinite, never-ending process of constant revisions.
Causal Reasoning: Establishing a firm "report date" creates a legal boundary.
Management takes over full responsibility for any new events that transpire after the auditor signs off, protecting the auditor from endless retroactive liability for future unpredictable disasters.