What do you do if a subsequent event changes the financial statements?
A core Audit & Assurance interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
Apply IAS 10. Adjusting events (conditions existed at balance-sheet date, e.g. litigation settlement) require restating the FS. Non-adjusting events (arose after, e.g. fire, acquisition) require disclosure only if material. If the event occurs after the audit report is signed but before issuance, discuss with management and potentially reissue. Evaluate going-concern impact in all cases.
WHAT INTERVIEWERS LISTEN FOR
- ✓Distinguish adjusting vs non-adjusting events
- ✓Restate FS for adjusting events
- ✓Disclose material non-adjusting events
- ✓Handle events after audit report
- ✓Assess going-concern implications
COMMON MISTAKES
- ✗Treating all subsequent events as adjusting
- ✗Ignoring disclosure requirements for non-adjusting events
- ✗Failing to consider going-concern impact
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