a) Goodwill Impairment

Risk of Material Misstatement:

• Goodwill Valuation: The carrying amount of GH¢3 million represents a significant portion of the assets of Kellwin Ltd., and there is a risk that the recoverable amount of the CGU may have been overstated, leading to an overstatement of goodwill in the financial statements. The directors’ assertion that no impairment is required may be based on optimistic assumptions, particularly in light of the challenging economic conditions that could impact the cash flows of the CGU.
• Subjectivity in Estimates: The impairment review involves significant judgment, especially in estimating the recoverable amount based on future cash flows, discount rates, and growth rates. There is a risk that these estimates may not be reasonable, leading to a material misstatement if the goodwill is not impaired when it should be.

Audit Procedures:

1. Review Impairment Calculation: Obtain and review the directors’ impairment calculation, including the key assumptions used in determining the recoverable amount of the CGU. Ensure that the calculation complies with the requirements of IAS 36.
2. Evaluate Cash Flow Projections: Assess the reasonableness of the future cash flow projections used in the impairment review, considering historical performance, current economic conditions, and industry trends. Compare the projections to actual results and other budgets or forecasts.
3. Test Discount Rate: Evaluate the appropriateness of the discount rate used in the impairment test by comparing it to market data, including the cost of capital and risk premiums for similar entities in the industry.
4. Perform Sensitivity Analysis: Conduct a sensitivity analysis on the key assumptions (e.g., cash flow growth rates, discount rates) to determine the impact on the recoverable amount and assess whether any reasonable changes in these assumptions would result in an impairment.
5. Consider Use of an Expert: If the impairment review involves complex or highly judgmental estimates, consider involving a valuation expert to assist in evaluating the appropriateness of the methodology and assumptions used.

b) Accounting Policies

Risk of Material Misstatement:

• Revenue Recognition: The change in the accounting policy for revenue recognition from delivery to dispatch may result in the premature recognition of revenue, leading to an overstatement of revenue and profits in the financial statements. The retrospective application and restatement of comparatives add further complexity and increase the risk of error.
• Justification for Change: The directors’ justification for the change in accounting policy must be thoroughly evaluated to ensure that it provides more relevant information and that the change is in accordance with the applicable financial reporting framework (IFRS 15 Revenue from Contracts with Customers).

Audit Procedures:

1. Review Policy Change: Review the rationale provided by the directors for the change in accounting policy and assess whether it is appropriate under IFRS 15. Confirm that the change results in more relevant and reliable information for users of the financial statements.
2. Test Restatement of Comparatives: Verify that the restatement of comparative figures has been performed accurately and in accordance with the applicable accounting standards. Ensure that the impact of the policy change has been correctly reflected in the financial statements.
3. Examine Revenue Recognition: Test a sample of revenue transactions before and after the policy change to ensure that revenue has been recognized in accordance with the new policy. Confirm that the timing of revenue recognition is appropriate and that no premature revenue has been recognized.
4. Evaluate Disclosures: Review the disclosures in the financial statements related to the change in accounting policy, ensuring that they are clear, complete, and in compliance with IAS 8 Accounting Policies, Changes in Accounting Estimates, and Errors.

c) Auditor’s Opinion and Going Concern

Risk of Material Misstatement:

• Going Concern: There is a significant risk that the financial statements may be misstated if the going concern assumption is not appropriate. The ongoing negotiations with the bank and the uncertainty surrounding the waiver of loan covenants create a material uncertainty that may cast significant doubt on the company’s ability to continue as a going concern.
• Management Bias: The directors may be overly optimistic about the likelihood of securing additional funding, which could lead to the inappropriate use of the going concern basis of accounting. If the company is not a going concern, the financial statements should be prepared on a break-up basis, and appropriate disclosures should be made.

Audit Procedures:

1. Review Cash Flow Forecasts: Obtain and review management’s cash flow forecasts for the next 12 months, assessing their reasonableness and consistency with other budgets or forecasts. Evaluate the assumptions used, including revenue growth, cost projections, and the timing of cash inflows and outflows.
2. Examine Correspondence with the Bank: Review correspondence between Kellwin Ltd. and its bank regarding the waiver of loan covenants and the potential for additional funding. Assess the likelihood of securing the necessary waiver and funding, and consider the implications for the going concern assessment.
3. Discuss with Management: Discuss the going concern assessment with management, including the plans to mitigate the risks identified, such as cost-cutting measures or asset disposals. Evaluate the feasibility of these plans and their impact on the company’s ability to continue as a going concern.
4. Review Subsequent Events: Perform a review of subsequent events up to the date of the auditor’s report to identify any developments that may affect the going concern assessment, such as changes in the company’s financial position or the outcome of negotiations with the bank.
5. Assess Adequacy of Disclosures: Review the disclosures in the financial statements related to going concern, ensuring that they adequately describe the material uncertainties and management’s plans. If significant doubt remains, consider the need for an emphasis of matter paragraph or a qualified opinion in the auditor’s report.
6. Consider the Auditor’s Report: Based on the findings from the above procedures, consider the appropriate form of the auditor’s report. If the going concern assumption is deemed inappropriate, or if there is insufficient evidence to support management’s assessment, a qualified opinion or an adverse opinion may be necessary.