Adjusting event + non-adjusting event + report date + issue date The financial statements of Apex Lt

Adjusting event + non-adjusting event + report date + issue date

The financial statements of Apex Ltd. are for the year ended 31 March 2026.

The auditor’s report is dated 20 May 2026 and the financial statements are issued to third parties on 5 June 2026.

Consider the following events:

Event I

On 25 May 2026, a major customer becomes insolvent. Evidence obtained by the auditor establishes that the customer’s financial difficulties had already existed at 31 March 2026.

Event II

On 30 May 2026, a fire destroys a warehouse containing inventory. There was no indication of the fire risk or damage at 31 March 2026.

Event III

On 2 June 2026, the auditor becomes aware of information that, had it been known on 20 May 2026, may have caused the auditor to amend the auditor’s report. Management agrees to amend the financial statements.

The audit senior makes the following statements:

Statement 1: Event I provides evidence regarding a condition existing at the reporting date and therefore may require adjustment of the financial statements.

Statement 2: Event II represents a condition arising after the reporting date and therefore would ordinarily not result in adjustment, although disclosure may be necessary depending upon the applicable financial reporting framework.

Statement 3: For Event III, since the auditor’s report has already been dated, the auditor has no further responsibility until the financial statements are issued; once management agrees to amend the financial statements, the auditor can simply issue a replacement report without performing further audit procedures on the amendment.

Which of the following is correct?

A. Statements 1 and 2 are correct, while Statement 3 is incorrect because the auditor must follow the specific SA 560 procedures applicable to facts becoming known after the report date but before issuance.

B. Statements 1 and 3 are correct because management’s agreement to amend the financial statements eliminates the need for the auditor to perform further procedures on the amended information.

C. Statements 2 and 3 are correct because events occurring after 31 March cannot result in adjustment, and management’s amendment resolves the auditor’s reporting responsibility.

D. All three statements are correct because once the auditor’s report has been dated, the auditor’s responsibility is limited to determining whether management agrees to amend the financial statements.