Lesson: Procedures for Obtaining Evidence

Instructor: Nick Palazzolo

This lesson delves into the procedures for obtaining evidence about subsequent events. Nick Palazzolo, CPA, guides viewers through the importance of investigating changes in long-term debt and ensuring proper classification between short-term and long-term debt. The lesson also explores the need to inquire of legal counsel on litigation claims and assessments, management regarding significant changes in stockholders' equity, and any unusual account adjustments after year-end. Additionally, the lesson covers the importance of comparing the most recent interim financial statements to those under audit and reviewing the minutes from the board of directors for any clues on significant subsequent events.

Updated: June 22, 2023 Create an account

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Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Alright, do some stretches, get an energy drink in you. Let's keep powering through this. Let's see what we got here. We've got procedures for obtaining evidence about subsequent events. So what are you going to do to get this evidence for subsequent events? Well, if we want to investigate changes in long-term debt, start with that account. Classification between short-term and long-term debt is important. Make sure the financial statements are accurate. And changes in debt structure after the balance sheet date could affect the debt classifications for the period under audit. Alright, so that's what you're going to look into there. You're going to investigate those changes in long-term debt, make sure that long-term debt and short-term debt is properly classified. Inquiring of legal counsel on litigation claims and assessments arising after year end. You're going to contact the client's legal counsel. Contingencies and commitments must be disclosed and accrued for. We want to inquire management for significant changes in stockholders' equity occurring after year end. Any significant dilution of shareholders, that's important for the shareholders to know. If they're being significantly diluted, well, I wouldn't want to be diluted as a shareholder, but hey, that's how some companies work. It's all fine. But we got to know if that is happening so we can disclose for it. Changes in capital structure, right? Did we just issue a bunch more stock? Significant ownership changes. Did we have some massive private equity firm come in and just buy up 30% of the company? That could all be important for shareholders to know. We want to compare the most recent interim financial statements. So this would be maybe interim financials. Remember that could be like January 1st to June 30th. So just a half year financial statements. We want to

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Engagement Planning, Understanding an Entity, & Understanding its Internal Control

Module: 2 Concepts, 36 Lessons

Management's Responsibility for Disclosing Related Parties, Going Concern, Litigation, Estimates, & More Overview

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Management's Responsibility for Disclosing Related Parties, Going Concern, Litigation, Estimates, & More Objectives

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Introduction to Management's Representation and Responsibility

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Reliance on Management Representations