Reporting of subsequent events in financial statements – between obligation and necessity

Abstract

The article aims to highlight the importance of reporting of subsequent events in financial statements, the factors that influence their reporting and the implication in statutory audit. The purpose of the article is to research the theoretical and legal basis which regulates the accounting and audit of subsequent events, but also research practical cases on this subject. The case study was based on the study of the 62 companies, listed on the Bucharest Stock Exchange, from which were analyzed the financial statements and the independent auditor"s reports, grouping the subsequent events which was found, depending on their type and the domain in which that company operates, and were compared the types of events that occurred in each domain of activity. From empirical research resulted that reporting of subsequent events can be influenced by various factors such as: the auditor"s category, the audit opinion, the performance and the size of company. The main conclusion which resulted from the study case is that the subsequent events are more frequent presented in financial statements of an entity, influencing in some cases the auditor"s opinion related to these financial statements.

Hoe beïnvloedt assurance over niet-financiële informatie in geïntegreerde verslaggeving de beslissingen van beleggers en opstellers?

“…De nïet-financïële verslaggevïng van bedrïjven varïeert afhankelïjk van de grootte, het volwassenheïdsnïveau van het bedrïjf, de bereïdheïd van het management om daadwerkelïjk transparant te zïjn, de complexïteït van bedrïjfsprocessen, strategische planning, organisatiestructuur en de belangen van partijen (Hategan 2022). De toenemende druk van beleggers en het bewustzijn van het management van bedrijven hebben geleid tot de ontwikkeling van een aantal rapportagekaders dïe trachten de relatïe tussen nïet-financïële en financïële prestatïes ïn kaart te brengen en te rapporteren.…”

Auditors’ Duty to Implement Subsequent Events Procedures for Stock Registration Statements: A Case Study of In Re Pareteum Securities Litigation

“…Lai (2013) examined the impact of the fair value measurement on audit quality and determined it has a negative effect on audit quality, and recommended that fair value measurement should be only moderately used in the current stage. In a case study of 62 companies, Hategan (2018) researched the theoretical and legal basis which regulates the accounting and audit of subsequent events; financial statements, audit reports and subsequent events were analyzed and the researcher concluded that reporting of subsequent events is influenced by several factors: category of auditor, the audit opinion, and the performance and size of the firm. In a study of 60 companies, Crucean (2021) emphasized the importance of reporting on subsequent events caused by the Covid-19 pandemic, how the pandemic affected the firms' ability to continue as a going concern, and the impact of the pandemic on the quality of audit services.…”

“…q. These are some of the implications for auditors emanating from this case: (1) pursuant to Section 11 of the Securities Act, an auditor may be liable for securities fraud if the financial statements filed in a stock Registration Statement contain an untrue statement of a material fact or omission of a material fact required to be stated therein; (2) in a Section 11 claim against an auditor, plaintiff is not required to prove that the auditor knew the information in the financial statements was false; (3) the mere issuance of an auditor's unqualified opinion of the client's financial statements is not actionable, because an opinion is not a statement of fact or a warranty of correctness; (4) pursuant to Section 18 of the Exchange Act and SEC Rule 10b-5, all information released to the public by a corporation (including press releases and annual and quarterly reports to stockholders) containing information compiled by an auditor must be truthful and complete, and not deceptive or misleading; (5) an auditor should presume the client's revenue is overstated and apply stringent requirements regarding the firm's recognition of revenue; (6) it is inconsistent for an auditor to issue an unqualified opinion on a client's financial statements while simultaneously issuing an adverse opinion on the client's internal controls; (7) an auditor's simultaneous issuance of an unqualified opinion on financial statements and an adverse opinion on internal controls may be actionable if the client's stockholders incurred damages in reliance on those two opinions; (8) pursuant to Auditing Standard (AS) 4101, an auditor must implement meticulous subsequent event procedures whenever recent events occurring after the date of the financial statements have potentially made the financial statements incorrect, deceptive or misleading; and (9) the auditor in this case is potentially liable for its failure to comply with AS 4101 because, had he undertaken the required subsequent event procedures, he should have been able to discover the material misstatements in the financial statements which were created by the CEO's fraud.…”

The Information Content of Audit Opinion for Users of Financial Statements

“…Competence is needed throughout the mission and leads to opinion based on the evidence, guaranteed by the auditor's independence and objectivity (Robu et al, 2016). Hategan and Crucean (2018) speak about the companies listed on the BSE from the perspective of subsequent events that occurring before or after the date of the audit report, events that in some cases may influence the auditor's opinion or may cause the auditor to issue a different audit opinion than the first issued, taking into account the impact that these subsequent events can change the annual financial statements. Barnes, Cussatt and Harp (2018) consider that the smaller auditors (non-Big4) were being stimulated to provide quality audits to attract and retain customers (national reputation) whit larger auditors (Big4) have more to lose from reputational damage.…”