Acca aaa s21 Notes

September 2021 to June 2022 exams
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2. 'Active' and 'passive' duty
2.1. Active duty
Until the auditor's report is signed auditors have an 
active
duty to look out for events that might tell 
them more about the financial statements. 
For example, examining cash receipts from year-end trade receivables, examine sales in the new year 
to see if inventory was properly valued, examining board minutes. The letter of representation would 
also allude to events after the period end.
2.2. Passive duty
After signing the auditor’s report, the auditors have a 
passive
duty only. Occasionally events will 
occur after the accounts have been signed and issued and these come to the auditor’s attention. 
Exceptionally it may be important for the addressees of the auditor’s report to be made aware that 
something is wrong in the accounts. The auditor would then discuss with the directors the need to re-
issue amended financial statements.
2.3. Amended financial statements
If management agrees to amend the financial statements, the auditor must:
๏
withdraw the 'old' report
๏
extend audit procedures, including subsequent review procedures, to the date of the new 
report
๏
issue a new report on the amended financial statements.
If management refuses to amend the financial statements, the auditor should take legal advice and 
consider any legal rights or obligations to inform the shareholders that the audit opinion cannot be 
relied on (e.g. to speak at a general meeting). 
You should appreciate why amended financial statements are very rare in practice:
๏
Audited financial statements are published more than a few months after the reporting date 
(e.g. UK public companies must file accounts within 6 months), so it is unlikely that something 
would happen so long after the year end of such significance that it would call for amendment.
๏
Private companies generally publish financial statements even later (e.g. within 9 months in the 
UK), so next year’s audit is already on the horizon or may even have started already.
๏
Even if the subsequent event points to something that occurred before the issue of the financial 
statements, the risk to the auditor’s professional liability may be very low (i.e. very low risk that it 
affects shareholders’ reliance on the audit opinion).