i) Financial Reporting Implications and Further Audit Procedures

The announcement of a restructuring after the reporting date is a non-adjusting event after the reporting date, according to IAS 10: Events After the Reporting Period. This is because the event does not provide evidence in relation to a condition that existed at the year-end.

Materiality calculations in respect of the potential cost of closure are as follows:

• Based on revenue: GH¢ 250,000/15 million = 1.67%
• Based on profit: GH¢ 250,000/3 million = 8.3%
• Based on assets: GH¢ 250,000/80 million = <1%

Therefore, this amount is material to the statement of comprehensive income.

Per IAS 10, a note should be provided to the financial statements, which describes the nature of the event and provides an estimate of the financial effect.

Audit Procedures:

1. Review of Note to Financial Statements
   Review any potential note to financial statements which should disclose the non-adjusting event, providing a brief description of the event and an estimate of the financial effect.
2. Discussion with Management
   Discuss the reason for the restructuring with a member of key management personnel and read minutes of board meetings where the plan was discussed, in order to gain an understanding about the reason for the restructuring.
3. Verification of Plan Approval
   Verify the approval of the plan itself, and the approval of the announcement of the plan, which can be performed through a review of board minutes.
4. Confirmation of Announcement Date
   Confirm the date on which the plan was approved and also the date of the announcement, using supporting documentation such as a press release, letters sent to employees, internal meetings held with employees, etc.
5. Documentation of Restructuring Costs
   Obtain a copy of the announcement and review for details, particularly a description of the exact nature of the restructuring, including the number of employees to be affected. Agree the GH¢ 250,000 potential cost of closure to supporting documentation, including a schedule showing the number and grade of staff to be made redundant, which should be supported by payroll/contract details.
6. Assessment of Restructuring Context
   Using the results of the discussion with management, assess the planned restructuring in the context of the auditor’s knowledge of the business, considering whether any further costs are likely to be incurred.

(6 marks)

ii) Actions to be Taken by the Auditor if the Financial Statements are Not Amended

1. Qualified Opinion Due to Breach of IAS 10
   If no note is provided to the financial statements, then there is a breach of IAS 10. In this case, there is insufficient disclosure provided in the notes to the financial statements regarding a material non-adjusting event after the reporting date.
2. Issue a Qualified ‘Except For’ Opinion
   According to ISA 701: Modifications to the Independent Auditor’s Report, in cases where the auditor is in disagreement (material misstatement) with management regarding the application of a financial reporting standard and where the disagreement is material to the financial statements, the auditor should express a qualified or an adverse opinion. Here, the matter is material but not pervasive to the financial statements, so a qualified ‘except for’ opinion should be given.
3. Disclosure in Audit Report
   The audit report should contain a paragraph which explains the reason for the qualification, specifying the breach of accounting standards, and stating the relevant financial amount. It would also be best practice for the auditor to clarify that the profit for the year is not affected by the breach of accounting standards, and that the disagreement is solely due to inadequate disclosure in the notes to the financial statements.
4. Communication with Those Charged with Governance
   The auditors should ensure that the matter, and the potential consequence for the audit report, has been made known to those charged with governance. This will allow the highest level of management (including executive and non-executive directors) the opportunity to discuss the matter, having reference to all relevant facts of the disagreement and implications thereof.
5. Raising the Issue at the Annual General Meeting
   Finally, the auditors could choose to raise this issue at the annual general meeting, where the matter leading to the qualified audit opinion should be explained to the shareholders of the company. (4 marks)