One of the major requirements of the audited financial statements is that the certified financial statements are presented truly and fairly.

In order to confirm that the financial statements give a true and fair view, standards of auditing not only require a review of the events that occurred during the fiscal year, but also require the auditor to consider the events occurring between the end of the reporting period and the date when the financial statements are authoried for issue.

The purpose of this work is to ensure that the truthfulness and fairness of the financial statements are presented in a more complete, continuous, and assurance.

What are the subsequent events?

Subsequent events are those events, favourable and unfavourable, that occur between the end of the reporting period and the date when the financial statements are authorised for issue.

There are 3 types of subsequent events

Ta có, 3 loại sự kiện phát sinh sau ngày kết thúc kỳ kế toán năm:

First, adjusting events after the reporting period

These are events that provide evidence of events that existed during the fiscal year and require adjustments before the financial statements are prepared.

Example: the receipt of information after the reporting period indicating that an asset was impaired at the end of the reporting period, or that the amount of a previously recognised impairment loss for that asset needs to be adjusted. For example:

• The bankruptcy of a customer that occurs after the reporting period usually confirms that the customer was credit-impaired at the end of the reporting period; and
• The sale of inventories after the reporting period may give evidence about their net realisable value at the end of the reporting period.

Second, non-adjusting events after the reporting period

These are events that provide evidence of events that existed during the fiscal year and do not require adjustments before the financial statements are prepared.

Example: A decline in fair value of investments in joint ventures, investments in associates, occurring between the end of the reporting period and the date when the financial statements are authoried for issue. The decline in fair value does not normally relate to the condition of the investments at the end of the reporting period. Therefore, an entity does not adjust the amounts recognised in its financial statements for the investments.

Third, non-adjusting events after the reporting period but need to update the disclosures in financial statements

These are events that provide evidence of events that are more qualitative than quantitative and occur after the end of the reporting period. If this information is missing, the report will be incomplete and the entity may not meet the going concern requirement.

Example:

• A business combination or disposing of company;
• Announcing a plan to discontinue an operation;
• The destruction of a major production plant by a fire, disaster;
• Commencing major litigation

In summary, a few points to note are as follows: After determining that an event is a subsequent event, the preparers of the financial statements need to determine whether the events need adjustment or not. If the events are not required to be adjusted, further consideration should be given to their effect on the preparation and presentation of the financial statements.