ACCA Audit and Assurance (F8) Practice Exam

Which of the following is an example of a "Subsequent Event"?

1. Change in management personnel

2. Sale of a subsidiary

3. Finalization of last year's budget

4. Adjustment of prior year tax returns

The correct answer is: Sale of a subsidiary

A subsequent event refers to an event that occurs after the balance sheet date but before the financial statements are issued, which has a significant impact on the financial statements. The correct answer pertains to a transaction that is a significant event impacting the organization’s financial position. The sale of a subsidiary is a clear example of a subsequent event because it would affect the financial results and position of the company. This transaction has implications for both the asset structure of the company and possibly future earnings, which should be disclosed in the financial statements to provide an accurate picture to the users of those statements. In contrast, a change in management personnel or the finalization of last year's budget does not have a direct financial impact on the financial statements of the reporting period. Similarly, while adjusting prior year tax returns may have concrete financial implications, it is typically categorized as a matter relating to a prior period rather than a subsequent event. Thus, it does not fall into the category of events that need to be reported as subsequent events in the financial statements.