Changing financial statements after approval

Louis van der Riet - For many years, financial statements have been approved by directors, many times subject to “minor approvals to be made”, then subsequently issued after changes were made and often a day or two later after initial approval.

Both auditors and clients need to up their game in this regard.

The financial statements as signed by the auditor must be the final set of financial statements as approved by the directors, on the date actually approved. So if changes are made to the financial statements after approval by the directors, the auditor’s report should be dated on the date after those changes were made.

Directors should ask themselves if they can approve a set of financial statements that will contain changes that they have not seen.

If a set of financial statements have been signed by the auditor, and subsequent to that, changes are made to the financial statements, the original set of signed financial statements should be retracted and reissued with a new approval date.

STIPULATIONS

International Standard on Auditing 560 Subsequent Events stipulates that the auditor has no obligation to perform any audit procedures regarding the financial statements after the date of the auditor’s report. However, if, after the date of the auditor’s report, but before the date the financial statements are issued, a fact becomes known to the auditor that, had it been known to the auditor at the date of the auditor’s report, may have caused the auditor to amend the auditor's report, the auditor shall:

· Discuss the matter with management and, where appropriate, those charged with governance;

? Determine whether the financial statements need amendment; and

? Enquire how management intends to address the matter in the financial statements.

If management amends the financial statements, the auditor shall:

· Carry out the audit procedures necessary in the circumstances on the amendment;

? Extend the audit procedures to the date of the new auditor's report; and

? Provide a new auditor’s report on the amended financial statements. The date of the new auditor’s report shall not be dated earlier than the date of approval of the amended financial statements.

QUALITY CONTROL

International Standard on Quality Control 1, which deals with quality control for firms that perform audits and reviews of financial statements, stipulates that a firm shall establish policies and procedures for engagement teams to complete the final assembly of engagement files on a timely basis after the engagement reports have been finalised. Such a time limit would ordinarily not be more than 60 days after the date of the auditor’s report.

The completion of the assembly of the final audit file, after the date of the auditor's report, is an administrative process. This should not involve the performing or adding new audit procedures to the file.

Examples of administrative changes are:

? Deleting or discarding superseded documentation;

? Sorting, collating and cross-referencing working papers;

? Adding original confirmations previously received by email;

? Deleting review queries;

? Organising the external hardcopy file; and

? Removing or replacing broken links in electronic files

You need to document the following for non-administrative changes and when audit evidence was only added after the report signing date:

? What information was added or changed;

? When the evidence was obtained;

? On what date the information was added or changed; and

? When the conclusions in respect of the new information were approved by the team manager and/or engagement leader.

* Louis van der Riet is an assurance partner at PwC Namibia. Contact him at [email protected]