CASE 5-1 EVENS SUBSEQUENT TO FINANCIAL REPORT DATE

Source: This case was adapted from 1993 Advanced Audit module material in the (CA) Program of the ICAA and modified for current auditing standards (ASAs/ISAs),

LEVEL OF DIFFICULTY: Medium

SUBJECT MATTER: Subsequent events, Materiality

STANDARDS: ISA/ASA S60, ISA/ASA320

Consider each of the following situations separately. Assume that all the following events and effects thereof are highly material in all cases: the financial report date of the companies is 31 December 2014;

the field work for the companies was completed on 20 February 2015: the financial report and audit report were signed on 3 March 2015;

the financial report and audit report were mailed to the members on 10

March 2015: and

the annual general meeting of the companies is scheduled for or was held on 30 March 2015,

B.At 31 December 2014, AAA Limited, had non-performing loans owing from individuals of $10 million.

Negotiations seeking an early settlement of the loans have been ongoing throughout the year. The company has offered a settlement package of $5 million cash as full consideration for the extinguishment of the debts.

Accordingly, at 31 December 2014 the directors had written the loans down to $5 million.

1. Would your assessment change if the current market value of the revised package offered on 28 February 2015 had been estimated at $4,250,000?