The Audit Does Not End at Year-End: Subsequent Events Under ISA 560

A common misconception is that once the financial year ends, the auditor's focus is limited to transactions recorded up to that date. In reality, what happens after year-end — right up to the date the auditor signs the report — can provide important audit evidence and, in certain circumstances, require adjustments or disclosures in the financial statements.

Two types of subsequent events

Adjusting events provide evidence of conditions that already existed at the reporting date.

Example: a customer enters insolvency shortly after year-end, confirming that the receivable was already impaired at the reporting date. The auditor may need to assess whether an adjustment to the allowance for expected credit losses, or to the receivable balance itself, is required under the applicable financial reporting framework.

Non-adjusting events relate to conditions that arose after the reporting date.

Example: a fire destroys a significant part of the company's warehouse after year-end. The event may not require adjustment to the year-end figures, but material disclosure may be necessary so that users of the financial statements are not misled.

The accounting treatment comes from IAS 10, Events after the Reporting Period. The auditor's responsibilities come from ISA 560.

What ISA 560 requires

The auditor is required to perform procedures designed to obtain sufficient appropriate audit evidence that all events occurring between the date of the financial statements and the date of the auditor's report that require adjustment or disclosure have been identified.

Practical procedures include:

• Reviewing subsequent bank transactions
• Examining post-year-end sales and purchase records
• Reviewing board minutes and management meetings
• Discussing significant developments with management
• Assessing litigation, claims and financial commitments
• Reviewing major credit notes, returns and write-offs

Each procedure is looking for the same two things: information that changes the picture as at year-end, or a new development significant enough that readers need to know about it.

The question that decides the treatment

The key question is not simply "What happened after year-end?" It is:

"Does this event provide evidence about a condition that existed at year-end, or does it represent a new condition arising afterwards?"

That distinction determines whether the financial statements require an adjustment, a disclosure, or no change. Getting it wrong in either direction matters. Adjusting for a genuinely new condition misstates the year-end position; failing to adjust for evidence of an existing condition leaves a known error in the accounts.

What this means for management

• Keep the auditor informed of significant developments between year-end and signing — customer failures, disputes, losses, financing changes.
• Do not process post-year-end credit notes, returns and write-offs without considering what they say about year-end balances.
• Update the going concern assessment if post-year-end events affect funding or trading.
• Expect questions about events right up to the report date; a late development can delay signing.

Key takeaway

A year-end audit is not completed merely by verifying balances as at the reporting date. It also requires the auditor to evaluate relevant developments occurring afterwards and to apply professional judgement in determining their impact on the financial statements and the audit report.