ISA 560 – Subsequent Events

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ISA 560 DEALS with the auditor’s responsibilities RELATING to subsequent events in an ‘Audit‘ of Financial Statements.

Section 01

Overview & Objective of ISA 560

ISA 560 establishes the auditor’s responsibilities relating to subsequent events, those events occurring after the financial statement date that may materially affect the financial statements and therefore require either adjustment or disclosure.

The standard works in Tandem with IAS 10, Events After the Reporting Period, which governs the accounting treatment, while ISA 560 governs the auditor’s evidence-gathering and reporting obligations.

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Core Objective

To obtain sufficient appropriate audit evidence that all subsequent events up to the date of the auditor’s report that require adjustment or disclosure in the financial statements have been appropriately identified and reflected.

Section 02

Key Definitions Under ISA 560

ISA 560 introduces precise terminology that every auditor must understand. Confusion between these dates is a common source of audit failures.

Date of the Financial Statements Para. 5(a)
The date of the end of the latest period covered by the financial statements i.e., the balance sheet / reporting date.
Date of Approval Para. 5(b)
The date on which all financial statements (including notes) have been prepared and those with recognised authority have asserted responsibility for them. Where shareholder approval is required, it is the earlier date when management/those charged with governance sign off, not the shareholder meeting.
Date of the Auditor’s Report Para. 5(c)
The date the auditor dates the report on the financial statements. It must not be earlier than the date on which the auditor has obtained sufficient appropriate audit evidence on which to base the opinion.
Date Financial Statements are Issued Para. 5(d)
The date on which the auditor’s report and the audited financial statements are made available to third parties e.g., filed with a regulator or distributed to shareholders.
Subsequent Events Para. 5(e)
Events occurring between the date of the financial statements and the date of the auditor’s report, and facts that become known to the auditor after the date of the auditor’s report.
Section 03

Two Types of Subsequent Events

Both ISA 560 and IAS 10 recognise two distinct categories of subsequent events, each triggering a different accounting and audit response.

I
Type 1 · Adjusting Events

Conditions Existing at Balance Sheet Date

Events that provide additional evidence of conditions that already existed at the period-end. The financial statements must be adjusted.

  • Resolution of litigation that was pending at year-end
  • Customer insolvency confirming year-end receivable is irrecoverable
  • Discovery of fraud or errors affecting reported figures
  • Sale of inventory below cost after year-end, evidencing NRV at period-end
  • Final determination of year-end bonus or profit-sharing amounts
II
Type 2 · Non-Adjusting Events

Conditions Arising After Balance Sheet Date

Events that are indicative of conditions arising after the period-end. No adjustment is required; disclosure is required if material.

  • Major acquisition or disposal of a subsidiary
  • Announcement of a restructuring plan
  • Significant fire, flood or other disaster
  • Issuance of new shares or bonds after year-end
  • Abnormally large changes in asset prices or exchange rates
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Auditor’s Distinction

The auditor must carefully distinguish between the two types. Misclassifying a Type 1 event as Type 2 or vice versa can result in materially misstated or inadequately disclosed financial statements, potentially leading to a modified opinion.

Section 04

Critical Date Timeline

Understanding how ISA 560 maps the auditor’s obligations across the audit timeline is essential. Each phase carries distinct responsibilities.

D1
Balance Sheet DateEnd of financial period; conditions at this date determine Type 1 events.
D2
Approval DateStatements prepared & responsibility accepted by management/TCWG.
D3
Auditor’s Report DateActive evidence-gathering obligation ends here. Report is signed.
D4
Issuance DateStatements made public. Post-issuance discovery triggers different obligations.
D1 → D3: Auditor actively performs subsequent events procedures
D3 → D4: Passive alertness; act if notified of new facts
After D4: Discovery of omitted facts triggers corrective action
Section 05

Audit Procedures Under ISA 560

Paragraphs 6–9 of ISA 560 require the auditor to perform specific procedures designed to identify subsequent events up to the date of the auditor’s report. These are not optional, they are mandatory requirements.

“The auditor shall perform audit procedures designed to obtain sufficient appropriate audit evidence that all subsequent events… have been identified.”

ISA 560, Paragraph 6
Read Interim Financial Statements

Review the entity’s most recent interim financial statements (whether prepared for internal or external purposes) to identify unusual transactions or significant changes since the balance sheet date.

Review Minutes of Meetings

Read minutes of meetings of owners, management, and those charged with governance held after the balance sheet date. Inquire about matters discussed but not yet minuted.

Inquire of Management and TCWG

Make specific inquiries of management (and where appropriate, those charged with governance) about: events that could affect the financial statements, new commitments or borrowings, sales or acquisitions of major assets, changes in share capital, and pending or threatened litigation.

Inquire About Current Status of Items

Follow up on items initially assessed as uncertain or provisional at the balance sheet date such as contingent liabilities, going concern indicators, or provisional valuations.

Obtain Written Representations

Per ISA 580, obtain a management representation letter (dated as of the date of the auditor’s report) confirming that all events subsequent to the balance sheet date that require adjustment or disclosure have been adjusted or disclosed.

Review Latest Available Accounting Records

If interim financial statements are not available, inspect bank statements, cash receipts/payments journals, and other accounting records for the subsequent period.

Section 06

Facts Discovered After the Auditor’s Report but Before Issuance

Between the date of the auditor’s report (D3) and the date the financial statements are issued (D4), the auditor has no active duty to perform further procedures. However, if the auditor becomes aware of a fact that, had it been known at D3, may have caused the report to be amended, ISA 560 paragraphs 10–12 require specific actions.

01
Discuss with Management and TCWG

The auditor must discuss the matter with management and those charged with governance to determine whether the financial statements need amendment.

02A
If Management Amends the Statements

The auditor performs necessary audit procedures on the amendment, extends subsequent events procedures to the new date, and provides either a new or updated auditor’s report. If the original report is returned and not reissued, a new report is issued with an explanatory paragraph. Dual dating may be used, restricting the extension to the specific amendment only.

02B
If Management Does NOT Amend the Statements

The auditor must modify the opinion if the original auditor’s report has not been released to the entity. If it has been released, the auditor notifies management not to issue the statements. If statements are issued regardless, the auditor takes legal advice and considers notifying users.

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Dual Dating — Key Concept

When the auditor restricts an updated report date to a specific subsequent amendment, the original audit work date is preserved. The dual date format reads: “[Original date], except as to Note X, which is as of [new date].” This limits the auditor’s responsibility to the specific amendment only.

Section 07

Facts Discovered After the Financial Statements Have Been Issued

Once financial statements are issued (after D4), ISA 560 paragraphs 14–17 govern the auditor’s obligations. While the auditor has no duty to perform ongoing procedures, discovered facts cannot be ignored.

ScenarioManagement RespondsManagement Does NOT Respond
New fact discovered post-issuanceAuditor assists management in amending statements, performs procedures on amendments, issues new report. AcceptableAuditor notifies management not to issue statements. If already issued, notifies management of intent to prevent future reliance. Non-compliant
Management issues amended statementsNew auditor’s report issued, not dated earlier than the date the amended statements are approved.Auditor may need to notify regulatory authorities, shareholders, or other users depending on jurisdiction.
Regulatory & legal obligationsThe auditor may have additional legal obligations particularly when securities offerings are involved (e.g., a prospectus). ISA 560 notes that auditors may be required to perform procedures to the date of the final offering document.
Section 08

Relationship Between ISA 560 and IAS 10

ISA 560 and IAS 10 are complementary standards as one governs the accounting treatment, the other the audit response. Understanding both is essential for audit professionals and finance teams alike.

DimensionIAS 10ISA 560
Issued byIASB (International Accounting Standards Board)IAASB (International Auditing & Assurance Standards Board)
Primary audienceManagement / Finance teams preparing statementsExternal auditors reporting on statements
Key obligationAdjust or disclose events after the reporting periodObtain evidence that adjustments/disclosures are complete and appropriate
Type 1 / Adjusting eventsRecognise in financial statementsEvaluate whether recognition is appropriate; gather sufficient evidence
Type 2 / Non-adjusting eventsDisclose if material; do not adjustVerify disclosure is adequate; consider impact on auditor’s report
Cut-off date for obligationsDate financial statements are authorised for issueDate of auditor’s report (active); date of issuance (passive)
Section 09 · FAQ

Frequently Asked Questions on ISA 560

What is the difference between the date of approval and the date of the auditor’s report?
The date of approval is when management (or those charged with governance) formally accepts responsibility for the financial statements. The date of the auditor’s report is when the auditor having gathered sufficient appropriate evidence, signs the report. The auditor’s report cannot be dated earlier than the approval date, since the statements must be finalised before the audit can be completed.
Does ISA 560 require the auditor to actively search for events after the report is signed?
No. Once the auditor’s report is signed, there is no active duty to continue searching for subsequent events. However, if the auditor becomes aware of a material fact before the statements are issued, they must take action. After issuance, facts discovered must also be considered and acted upon, though no proactive search is required.
What is dual dating and when is it used?
Dual dating is used when the auditor amends the auditor’s report to address a specific subsequent event discovered after the original report was signed but before issuance. The original report date is retained (preserving the scope of audit work done), but an additional date is added specifically for the amendment, such as: “except for Note X, which is as of [new date].” This limits the extended responsibility to the specific matter only.
How does ISA 560 apply to public sector entities?
Although early versions of the standard included specific public sector guidance, noting that the “date the financial statements are issued” could be when audited statements are presented to the legislature – the revised ISA 560 deleted this specific reference. The standard now applies equally to all entities. However, in jurisdictions where law prevents public sector entities from issuing amended statements, the auditor may need to report separately to the appropriate statutory or legislative body.
What is the relationship between ISA 560 and a securities offering prospectus?
When audited financial statements are included in a prospectus or other securities offering document, the auditor may have additional legal or regulatory obligations in the relevant jurisdiction. The auditor may be required to perform subsequent events procedures up to the effective date of the final offering document typically including procedures from paragraphs 6 and 7 of ISA 560 and a review of the prospectus for consistency with the audited financial statements.
Can the auditor’s report be dated before the financial statements are approved?
No. The auditor’s report must not be dated earlier than the date of approval of the financial statements, because the auditor cannot have gathered sufficient appropriate evidence on a complete set of financial statements before management has finalised and taken responsibility for them. Dating the report earlier would misrepresent the scope of the audit work performed.