How do we deal with subsequent events? 10 You are the manager responsible for th

Question

How do we deal with subsequent events? 10 You are the manager responsible for the audit of Sunway Group Berhad for the year ended 30 June 201 6. The draft consolidated financial statements recorded revenue of RM200 bil, profit before tax of RM 1.8 bil and total assets of RM380 bil. You noted the following: An overseas subsidiary is being sued by a customer for RM 70mil. The subsidiary auditors obtained verbal confirmation from the legal advisors that the damages are probable, but not virtually certain to be paid, and no provision has been recognised in either the individual or consolidated financial statements No other audit evidence has been obtained by the subsidiary auditors

Explanation / Answer

DATA:

sting event: An event after the reporting period that provides further evidence of conditions that existed at the end of the reporting period, including an event that indicates that the going concern assumption in relation to the whole or part of the enterprise is not appropriate. [IAS 10.3]

djusting event: An event after the reporting period that provides further evidence of conditions that existed at the end of the reporting period, including an event that indicates that the going concern assumption in relation to the whole or part of the enterprise is not appropriate. [IAS 10.3]

djusting event: An event after the reporting period that provides further evidence of conditions that existed at the end of the reporting period, including an event that indicates that the going concern assumption in relation to the whole or part of the enterprise is not appropriate. [IAS 10.3]

Adjusting event: An event after the reporting period that provides further evidence of conditions that existed at the end of the reporting period, including an event that indicates that the going concern assumption in relation to the whole or part of the enterprise is not appropriate. [IAS 10.3]

Accounting

EVENT = BEFORE BALANCE SHEET DATE

MATERIALITY = 4% (70/1800 X 100)

DISCLOSURE as case is ongoing

SUFFICIENT WORK DONE? NO, more evidence needs to be obtained from lawyers regarding the probability of winning the case

IF CLIENT AGREES TO ADJUSTMENT – clause “subject to”

IF CLIENT DISAGREES – JUST DISCLOSE

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