CA Naman is conducting an audit of AIR Ltd. for the year 2024-25. The company is engaged in the export of handicraft items in Europe. The audit is…

In the given case, the auditor CA Naman has come to know about the legal claim against the company before the issuance of the audit report. It has also come to his knowledge that the management of the company has agreed to an out of court settlement of 4crore. This is an example of a subsequent event between the date of the financial statements and the date of the auditor's report. It provides evidence of conditions that existed at the date of the financial statements and requires adjustment in financial statements. Further as per SA 560, “Subsequent Events”, the auditor shall request management and, where appropriate, those charged with governance, to provide a written representation in accordance with SA 580, “Written Representations" that all the events occurring subsequent to the date of the financial statements and for which the applicable financial reporting framework requires adjustment or disclosure have been adjusted or disclosed. In view of above, CA Naman should ensure that appropriate adjustments are made by the management. In the absence of the same, he should consider the impact of the said event and report accordingly.