Auditor Responsibility for Subsequent Events and the PRIME Framework

What is the auditor's primary responsibility regarding management's evaluation of subsequent events

Ensuring adjustments and disclosures are appropriate and in accordance with the framework.

The mnemonic used to remember auditor procedures for identifying subsequent events is _____.

PRIME

In the PRIME mnemonic, what does the letter 'P' represent?

Postbalance sheet transactions.

Which two specific post balance sheet transactions are common targets for examiner questions?

Increases in stock or debt.

In the PRIME mnemonic, what does the letter 'R' represent?

Representation letter.

Why does the auditor read the management representation letter concerning subsequent events?

To see if management identified events requiring financial statement adjustment or disclosure.

In the PRIME mnemonic, what does the letter 'I' represent?

Inquiry.

The auditor should specifically inquire about items that were accounted for using _____ data.

Preliminary or inconclusive.

Which external party should the auditor inquire with regarding litigation, claims, and assessments?

Legal counsel

In the PRIME mnemonic, what does the letter 'M' represent?

Minutes

Which types of minutes should an auditor review to find events impacting the financial statements?

Board of directors and subcommittee minutes.

In the PRIME mnemonic, what does the letter 'E' represent?

Examine

What documents should the auditor compare with the audited financial statements during the 'Examine' phase of PRIME?

Latest available interim financial statements.

To what date does the auditor's responsibility for subsequent events generally extend?

date of the audit report

How is the audit report date related to the release of financial statements for public companies?

The report is typically dated a few days before issuance.

Under what circumstance does an auditor's responsibility extend until a document is submitted?

When the report is included in a registration statement or exempt offering.

What does the audit report date signify regarding audit evidence?

date the auditor obtained sufficient appropriate evidence to support the opinion.

What is the auditor's responsibility to perform procedures after the audit report date?

No responsibility exists to discover subsequent events after the report date.

What two factors must the auditor determine if new information is found after the report date?

• If the information is reliable

• if it existed at the report date.

Unlike management, how long does the auditor's responsibility for subsequent events typically last?

Until the date of the audit report.

At what stage of the audit are procedures to identify subsequent events primarily performed?

The forming conclusion stage.

When is an auditor's responsibility for subsequent events extended beyond the report date until the document is submitted?

When the auditor's report is included in a registration statement or exempt offering.

What should the auditor do if they determine a subsequent event requires revision but the effect cannot be determined timely?

Notify the financial statement users immediately.

What is the primary purpose of 'dual dating' an audit report?

To extend responsibility for one specific event while limiting responsibility for all other events to the original report date.

What is the consequence of using a single later date for the entire audit report rather than dual dating?

The auditor must extend all subsequent event procedures for all notes to the later date.

What does the 'D' in the auditor's 'DARE' response to client refusal stand for?

Disassociate

(notify the client that the report can no longer be relied upon).

What does the 'A' in the auditor's 'DARE' response to client refusal stand for?

Alert (notify regulatory agencies that the report should not be relied upon).

What does the 'R' in the auditor's 'DARE' response to client refusal stand for?

Relying parties (notify known users that the report can no longer be relied upon).

What should the auditor ask management regarding the 'I' (Inquiry) step for litigation?

Whether there are any new commitments, borrowings, or guarantees.

Why does the auditor examine the latest available interim financial statements?

To look for events that may impact the financial statements currently under audit.