Generally speaking, the idea of an audit is to examine the past. However, important events can and do occur either after a financial period ends or after audit work is completed. In order to address these events, the American Institute of Certified Public Accountants (AICPA) issued SAS No. 122. The AICPA also published AU-C §560 in order to clarify SAS No. 122 (AICPA, 2015).
Analysis
SAS No. 122 defines subsequent events as: “Events occurring between the date of the financial statements and the date of the auditor's report” (AICPA, 2015). Types of subsequent events include, but are not limited to: 1. Transactions affecting the valuation of assets or liabilities;
2. Changes in client operations or market conditions;
3. Cancellations of sales orders;
4. Commitments for major purchases of inventory that could result in possible losses due to price trends;
5. Significant unanticipated tax refunds;
6. Significant litigation, either settled or entered into;
7. Dividends Declared or paid;
8. Changes in accounting policies;
9. Significant new borrowings;
10. Natural or unnatural disasters (Perry, 2015).
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