The balance sheet is dated December 31. Fieldwork wraps in late February. The audit report goes out March 10. On March 12, a major customer files for bankruptcy. On April 18, after the statements have been issued, you learn an inventory observation missed an entire warehouse. Each event lands in a different bucket of AU-C 560 and AU-C 585. The exam tests whether you can sort them in the right order.
HIGH-FREQUENCY: AU-C 560 splits the post-balance-sheet timeline. The subsequent period runs from the balance sheet date through the audit report date. Events here are subsequent events, and the auditor has an active duty to identify them, with the analysis turning on whether each is appropriately reflected in the statements. The audit report date is the date on which the auditor obtained sufficient appropriate audit evidence to support the opinion. After the report date come subsequently discovered facts.
KEY: "Subsequent event" and "subsequently discovered fact" are not synonyms. Subsequent events occur before the report date; subsequently discovered facts come to light after it.
Common mistakes
- Treating any event before the report date as Type 1. Timing alone does not determine the type. The test is whether the underlying condition existed at the balance sheet date. A January 3 fire is Type 2; a late-February bankruptcy of a customer who deteriorated in October is Type 1.
- Adjusting the financial statements for Type 2 events. A Type 2 event is disclosed only. Adjusting for a post-year-end fire would distort the December 31 financial position. The exam offers adjustment as a trap for clearly post-year-end events.
- Confusing dual dating with re-dating. Dual dating uses two dates: the original for the audit overall and a later date limited to the revised note. Re-dating uses one later date for the entire report, which extends subsequent-events responsibility through that later date for all items.
Bottom line
- AU-C 560 governs subsequent events (between balance sheet date and audit report date) and subsequently discovered facts (after the audit report date).
- Type 1 recognized: the condition existed at the balance sheet date, so adjust the financial statements.
- Type 2 nonrecognized: the condition arose after the balance sheet date, so disclose only.
- Audit report date is the date the auditor obtained sufficient appropriate audit evidence.
Exam shortcut
When a question describes an event in the subsequent period, ask: did the underlying condition exist at the balance sheet date? If yes, Type 1: adjust. If no, Type 2: disclose. The trap is using the date alone; always look for the cue about when the condition arose.
The full lesson (about 2,071 words, 14 min read) adds 1 worked example, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- III.H1
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