As the COVID-19 pandemic and economic effects arising therefrom continue to evolve, entities will be required to consider how events after the reporting period affect financial statements not yet authorised for issue, and auditors are required to obtain sufficient appropriate audit evidence as to whether subsequent events which require adjustment to, or disclosure in, the financial report, are identified and are appropriately reflected.
In March 2020, the AASB and the AUASB issued a joint FAQ The Impact of Coronavirus on Financial Reporting and the Auditor’s Considerations. That FAQ provides guidance for stakeholders in assessing the broader financial reporting implications of COVID-19, including whether events after the reporting period require adjustment in the financial statements.
Since this was published there have been a number of key events and Australian government policy changes which occurred in July and August 2020. To assist preparers of financial statements, the AASB have now issued another publication with additional Staff FAQs – Events after the reporting period during the COVID-19 Pandemic which provides a more in-depth discussion of events after the reporting period in light of developments beyond 30 June 2020, such as reinstated lockdowns, government policy changes and the potential for further events prior to entities authorising their financial statements for issue. This includes FAQs on:
• How do I assess whether an event after the reporting period is an “adjusting event” or a “non-adjusting event”?
• How should the financial statements reflect an adjusting event?
• Is any action needed if the event is a non-adjusting event?
• How do I assess whether a subsequent event is material?
• Do subsequent events affect the going concern assessment?
• How do estimations and events after the reporting period interact?
• What disclosures are required for events after the reporting period?
Entities with reporting periods ending on or after 30 June 2020 must carefully consider the specific facts and circumstances to assess the impacts of the ongoing developments on their financial report. As detailed in the AASB’s FAQs events post year end need to be assessed for each entity to consider:
• If they are an adjusting or non-adjusting event?
• Are there adequate disclosures on the impact and how this has been reflected in the financial statements?
• Have they been appropriately factored into going concern and solvency assessments?
• What is the impact on the data and assumptions used by management in asset valuations and other forward-looking estimates such as expected credit losses?
Refer also to The Impact of COVID-19 on Going Concern and Related Assessments), AUASB FAQ C5 Will the COVID-19 environment change what further auditor procedures I need to undertake to respond to the assessed risk of material misstatement?, and ASIC’s COVID-19 FAQs 2A What is the impact of restrictions in Victoria and changes to JobKeeper on financial reports for periods ended 30 June 2020?
Under ASA 560 Subsequent Events auditors are required to obtain sufficient appropriate audit evidence as to whether subsequent events which require adjustment to, or disclosure in, the financial report, are identified. Having identified any material subsequent events the auditor is required to determine whether each such event is appropriately reflected in the financial report in accordance with the applicable financial reporting framework.
Refer also to the following previously issued AUASB FAQs:
• FAQ F1: The COVID-19 event only impacted my audit client after the completion of the most recent audit. Am I required to perform any additional procedures after the auditor’s report has been signed?
• FAQ F2: My client’s reporting period has already ended however I have not signed my auditor’s report. What may be the audit implications of COVID-19? (focuses on December 2019 – March 2020 year ends).
As the pandemic continues to develop auditors should be alert to various jurisdictional government announcements and the constant changing environment post 30 June 2020 up to the date of the audit report. Auditors of entities with components and / or operations in other countries should also consider developments in these jurisdictions.