the period from the balance sheet date to the date the information is furnished, including an identification of those matters referred to legal counsel, and obtain assurances from management, ordinarily in the form of a representation letter, that they have disclosed all such matters required to be disclosed by generally accepted accounting principles (Statement of Financial Accounting Standards No. 5). Examine documents in the client's possession concerning litigation, claims, • and assessments, including correspondence and invoices from lawyers. Obtain assurance from management, ordinarily in the form of a representation • letter, that they have disclosed all unasserted claims that the lawyer has advised them are probable of assertion and must be disclosed in accordance with generally accepted accounting principles (Statement of Financial Accounting Standards No. 5). The auditor should request the client's management to send a letter of inquiry • to those lawyers with whom they consulted concerning litigation, claims, and assessments. Examples of other procedures undertaken for different purposes that might also disclose litigation, claims, and assessments are the following: Read minutes of stockholders, directors, and appropriate committee meetings • held during and subsequent to the period being examined. Read contracts, loan agreements, leases, and correspondence from taxing or • other governmental agencies, and similar documents. Obtain information concerning guarantees from bank confirmation forms. • Inspect other documents for possible guarantees by the client. • 17-24 a. For the financial statement audit, the two types of subsequent events that require Namiki’s consideration and evaluation are: Events that provide additional evidence concerning conditions that existed • at the balance sheet date and affect the estimates inherent in the process of preparing financial statements. This type of subsequent event requires that the financial statements be adjusted for any changes in estimates resulting from the use of such additional evidence. Events that provide evidence concerning conditions that did not exist at the • balance sheet date but arose subsequent to that date. Such events result in financial statement disclosure. If Taylor is a public company, then for the audit of internal control over financial reporting the two types of subsequent events the auditor must consider are: Control events that reveal information about a material weakness that • existed as of the end of the reporting period. If the event reveals information about a material weakness, the auditor should issue an adverse opinion on the effectiveness of internal control over financial reporting. If the auditor is unable to determine the effect of the subsequent control event on the effectiveness of the company’s internal control, the auditor should disclaim any opinion. Control events that create or reveal information about a new condition that • did not exist as of the end of the reporting period. If the information has a
material effect on the company, the auditor should include an explanatory paragraph describing the event and its effects or directing the reader’s attention to the event and its effects as disclosed in management’s report. b. The auditing procedures Namiki should consider performing to gather evidence concerning subsequent events include the following: Compare the latest available interim statements with the financial • statements being audited. Ascertain whether the interim statements were prepared on the same basis • as the audited financial statements. Inquire whether any contingent liabilities or commitments existed at the • balance sheet date or the date of inquiry. Inquire whether there was any significant change in the capital stock, long• term debt, or working capital to the date of inquiry. Inquire about the current status of items in the audited financial statements • that were accounted for on the basis of tentative, preliminary, or inconclusive data.
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Read or inquire about the minutes of meetings of stockholders or the board of directors. Inquire of the client's legal counsel concerning litigation, claims, and assessments. Obtain a management representation letter, dated as of the date of Namiki's audit report, as to whether any subsequent events would require adjustment or disclosure. Make such additional inquiries or perform such additional procedures Namiki considers necessary and appropriate. Examine and/or inquire about findings included in internal audit reports completed after year end.
