Date of Authorization for Issue

[Al-Mahamud]

Let, We have been appointed on 31 December 20X3 as an auditor of XYZ company for the year ended 30 June 20X4. We started our field work on 01 August 20X4. And the management sent us the FS through email on 25 August 20X4. After finishing our fieldwork on 30 September 20X4, we furnished the FS and sent it to the client with a recommendation for some adjustments. On 02 October 20X4, the management sent again the FS after the required adjustment and we issued an audit report on 05 October 20X4. My question is which is the date of authorization for issue here? 25 August 20X4? Or 02 October 20X4? Which date would have been mentioned in the notes to the financial statements as the date of approval of the financial statements?

[JRSB]

I don't think it's necessarily any of those dates; its when the management (Board?) of that company met and agreed to approve the accounts. You wouldn't issue an audit opinion after the date they were authorised, and it can't be before the final revisions, so it must be at some point between 2 Oct and 5 Oct.

[Marek Muc]

You wouldn't issue an audit opinion after the date they were authorised

I know that issuing the audit opinion on the same day is a standard practice, but what are the potential issues with issuing it at a later date?

[JRSB]

You can issue the audit after the company signs off but as you say typically is is the same time. You need to be ready to explain why there was a gap and what happened in between. Why did the company sign before the audit was finished? If the audit was finished, why delay the sign off?

[Marek Muc]

These questions assume that the same day sign-off is the default way to go. In my early days as a trainee auditor, I was struck by the expectation for same-day sign-offs. It seemed more logical to allow auditors several days with the finalised financial statements. This would enable a thorough finalisation of the audit, post the company's completion of their reporting processes and once all data had been finalised.

[JRSB]

Ok but what are you going to do if any issues come up in those few days?

[Marek Muc]

In terms of adjusting events, or errors in the financial statements?

[JRSB]

Anything which could affect the accounts which have already been signed by management.

[Marek Muc]

I guess it's better to identify any issues during the brief period when the financial statements are 'frozen', rather than missing them entirely. Just to clarify, I'm not thinking about edge cases where the auditor is involved only after the financial statements are authorised. I'm talking about a short window between the authorisation of the financial statements and the issuance of the audit report. From my experience, it was common to receive authorised financial statements and then have to rely on the client's team not making any errors in the final version, as there usually isn't time for a thorough 'ground-up' review of the final document. This has become even trickier with the adoption of xbrl formats as the official versions, particularly in the EU.

[JRSB]

Just checked Shell plc (most valuable UK company) as an example and management signed on same date as auditor.
Gap is technically fine but we've seen issues in one of the recent big FRC penalties where the partner got into problems when backdating the audit report in an effort to reduce the gap between the dates we're talking about and it's cases like that which show the problems that come up; keep it clean (like Shell) for an easy life!

(PS fascinating set of accounts. audit materiality of 1 billion USD).

[Marek Muc]

I'm not saying that this isn't the commonly accepted practice. In the case of public companies, it's different because their final results are deemed market-sensitive information. My focus was more on the audits of privately owned companies.

[JRSB]

I would have the same view. Either the audit is finished or it isn't; if it isn't, then management shouldn't be signing. If it is, the auditor should be ready to sign.