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Chapter 9 3 4

Example 2

After the auditor’s report has been signed

Nile Co’s year-end is 31 December 20X5. The auditor’s report was signed last
week and issued to the client. The finance director has called you to inform
you that a customer has filed a legal claim against the company in respect of
an accident which occurred on the client’s premises during December 20X5.
The company’s lawyers believe the claim is likely to succeed. The claim is
material.

This is an adjusting event. The auditor must ask management to adjust the
financial statements to recognise a provision for the estimated compensation.

If management refuse, the auditor should ask management and those
charged with governance not to issue the financial statements until the
amendments have been made.

If the client refuses to make the amendments, the auditor should take action to
prevent reliance on the auditor’s report.

If the financial statements have already been issued to the shareholders, the
auditor must ask management to recall the financial statements and amend
them to recognise a provision for the estimated compensation. Management
must take action to inform anyone who has a copy of the issued financial
statements of the misstatement.

If the financial statements are recalled and amended, the auditor should issue
a new auditor’s report including an emphasis of matter paragraph.

If the client refuses to make the amendments, the auditor should take action to
prevent reliance on the auditor’s report.

Illustrations and further practice

Now try TYU 1 in Chapter 9

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