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Review and ReportingWritten RepresentationsISA 580Subsequent Events

ACCA · Question 10 · Review and Reporting

SECTION A - CASE 2: GREENHARVEST CO-OP

SCENARIO:
You are the audit senior for GreenHarvest Co-op, a large agricultural cooperative, for the year ended 31 March 20X5. The audit is nearing completion. During the review phase, you note the following:

  1. A major customer, representing 15% of receivables, went into liquidation on 15 April 20X5.
  2. GreenHarvest is facing a lawsuit from a supplier regarding contaminated fertilizer, which the legal counsel advises has a 30% chance of success.
  3. The directors have refused to disclose a key executive's remuneration, which is required by local legislation, though the amount is immaterial to the financial statements as a whole.

QUESTION:
Under ISA 580 Written Representations, what specific representation must the auditor obtain from management regarding subsequent events?

Answer options:

A.

That no events have occurred subsequent to the date of the financial statements.

B.

That all events occurring subsequent to the date of the financial statements requiring adjustment or disclosure have been adjusted or disclosed.

C.

That the auditor is responsible for identifying all subsequent events up to the date of the AGM.

D.

That management will notify the auditor of any events occurring after the financial statements are issued.

How to approach this question

Recall the specific wording required by ISA 560 (Subsequent Events) to be included in the management representation letter.

Full Answer

B.That all events occurring subsequent to the date of the financial statements requiring adjustment or disclosure have been adjusted or disclosed.✓ Correct
ISA 560 Subsequent Events requires the auditor to request management to provide a written representation that all events occurring subsequent to the date of the financial statements and for which the applicable financial reporting framework requires adjustment or disclosure have been adjusted or disclosed.

Common mistakes

Choosing A, which is impossible (events always happen), or D, which relates to the period after the report is signed, not the primary representation required.
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