Question Tag: ISA 570

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  • 15 Marks

AAA – May 2019 – L3 – Q6 – Audit Reporting

Assess the impact of lost audit journals, actions required under ISA 570, and communication duties of auditors.

During the recent audit of Ogundu Commercial Limited, a privately owned trading company, you discovered that the former chief accountant resigned immediately after the conclusion and approval of the previous audited financial statements. The new chief accountant came in during the month of May and was working at familiarizing himself with the systems and financial operations of the company; and also ensuring that the accounting records are ready for the board of directors’ quarterly meetings and finalizing the accounts for the next audit.

Due to the pressure of work, the chief accountant lost part of the journals raised by the previous auditors but proceeded to finalize the accounts. This resulted in least expected financial performance for the year. The previous auditor is a sole practitioner and is now deceased.

The directors are concerned because the financial statements would be used to seek facilities from banks. The success or otherwise of the facility will impact the operations of the company and may lead to a reduction in both operation and staff engagement.

Required:
a. Evaluate the effect of the loss of the audit journals on the financial statements and the factors you would consider, as auditors, in drafting your report. (5 Marks)
b. In accordance with ISA 570, evaluate the actions required of the auditors in relation to the observed misstatement. (5 Marks)
c. Discuss the content of the communication expected of the auditors to the client before and after the audit, other than the auditors’ report. (5 Marks)

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  • 20 Marks

AAA – May 2019 – L3 – Q4 – Review of Subsequent Events and Going Concern Assumptions

Analyze the auditor's objectives, implications of going concern assumptions, directors' responsibilities, and risk assessment for going concern status.

Itanforiti Publishers Limited has been in the printing and publishing business for many years in Ibadan. The company has been performing well with a competitive advantage over many companies in the industry as a result of the engagement of a high-profile team of personnel and in-house printing of its published books.

The board of directors comprises two brothers and their wives. The older brother is the chairman, and the younger, the managing director. The fortunes of the company started dwindling in 2013 when conflicts could no longer be resolved amicably among the members of the board of directors.

The chairman, being a majority shareholder, assumed executive powers by combining the roles hitherto played by the managing director with his own as executive chairman in 2015. Governance of the company became unsettled, and key staff of the organization started resigning in turn.

In 2016, the financial reports of the company revealed its inability to pay creditors, and the supply of raw materials became irregular. In addition, the level of receivables became too high with a significant figure of doubtful and irrecoverable debts.

Your firm acts as auditors to the company, and you have been presented with the financial statements for the year ended 31st December 2017, for audit. The financial statements were prepared on a going concern basis.

Required:
a. Identify and explain the objectives of the auditor in the area of going concern in accordance with International Standards on Auditing (ISA 570). (5 Marks)
b. Explain the going concern assumption and the implications for the financial statements if the entity is not a going concern. (5 Marks)
c. Explain the going concern duties of the directors. (3 Marks)
d. Evaluate the risk assessment procedures to be performed by the auditor on the going concern status of the entity. (ISA 570). (7 Marks)

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  • 5 Marks

AA – May 2016 – L2 – Q4a – Completion Procedures and Reporting

This question outlines the external auditor's responsibilities and the work required regarding the going concern status of a company.

(a) Describe external auditor’s responsibilities and the work that the auditors must perform in relation to the going concern status of companies. (5 marks)

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  • 7 Marks

AA – Nov 2015 – L2 – Q2c – Audit and Assurance Risk Environment, Completion Procedures and Reporting

This question covers auditors’ responsibilities for subsequent events and going concern assessments, as well as internal control reporting.

c) Technolab has an internal audit department. The partner in charge of the audit is seeking clarification regarding how any deficiencies in internal control should be identified and communicated to management. The partner feels the report produced by the external auditors may duplicate the report produced by the internal audit function.

Required:
Explain how the purpose and content of an internal auditor’s report on internal control deficiencies differ from one prepared by the external auditor.
(7 marks)

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  • 14 Marks

AA – Nov 2015 – L2 – Q2a and b – Audit and Assurance Risk Environment, Completion Procedures and Reporting

This question covers auditors’ responsibilities for subsequent events and going concern assessments, as well as internal control reporting.

You are an audit senior for an audit firm and are currently working on the audit of Technolab, a company that produces sophisticated electronic laboratory equipment. The company imports a high proportion of the components it uses from China. The equipment is used by some laboratories dealing with hazardous chemicals.

As the audit draws to a close, the partner in charge has asked you to ensure that all procedures relating to subsequent events and going concern are properly performed. You are to consider the audit work to be performed in relation to ISA 560 Subsequent Events and ISA 570 Going Concern.

Required:

a) Describe the auditor’s responsibilities for subsequent events occurring between:
i. The year-end date and the date the auditor’s report is signed.
ii. The date the auditor’s report is signed and the date the financial statements are issued.
(6 marks)

b) Going concern relates to the judgment that an entity will continue to trade for the foreseeable future.
i. Explain the responsibilities of directors and auditors in relation to going concern.
(3 marks)
ii. Explain the audit procedures that the auditor could carry out when conducting the going concern review of Technolab.
(4 marks)

c) Technolab has an internal audit department. The partner in charge of the audit is seeking clarification regarding how any deficiencies in internal control should be identified and communicated to management. The partner feels the report produced by the external auditors may duplicate the report produced by the internal audit function.

Required:
Explain how the purpose and content of an internal auditor’s report on internal control deficiencies differ from one prepared by the external auditor.
(7 marks)

Total: 20 marks

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  • 10 Marks

AA – May 2017 – L2 – Q3c – Completion Procedures and Reporting

Audit procedures for determining if PharmaCo can continue as a going concern.

PharmaCo provides scientific services to a wide range of clients. Typical assignments range from testing food for illegal additives to providing forensic analysis on items used to commit crimes to assist law enforcement officers.

The annual audit is nearly complete. As audit senior, you have reported to the engagement partner that PharmaCo is having some financial difficulties. Income has fallen due to the adverse effect of two high-profile court cases by customers who bought drugs from the company.

Required:
Explain the audit procedures that may be carried out to determine whether or not PharmaCo has the ability to continue as a going concern entity.

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  • 10 Marks

AA – May 2020 – L2 – Q4a – Audit and Assurance Evidence

Identify who is responsible for ensuring the going concern basis in preparing financial statements.

Your audit firm has almost completed the audit of SG Ltd. At the review stage, the audit manager assembled the engagement team and wanted to find out whether the audit evidence obtained shows that the company is a going concern.

Required:
i) Outline whose responsibility it is to ensure that the going concern basis used in the preparation of the financial statements is reasonable and acceptable.
(7 marks)

ii) Outline with examples the THREE (3) broad classifications of going concern indicators. (3 marks)

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  • 10 Marks

AA – Aug 2022 – L2 – Q4a – Completion Procedures and Reporting

Defines going concern and discusses the auditor's responsibilities and procedures in relation to going concern.

Pinto Ltd (Pinto) provides analytical services to a wide range of clients. Typical assignments range from testing food for illegal additives to providing forensic analysis on items used to commit crimes to assist law enforcement officers.

The annual audit is nearly complete. As Audit Senior, you have reported to the Engagement Partner that Pinto is having some financial difficulties. Income has fallen due to the adverse effect of two high-profile court cases, where Pinto’s services to assist the prosecution were found to be in error. Not only did this provide adverse publicity for Pinto, but a number of clients did not renew their contracts. A senior employee then left Pinto, stating lack of investment in new analysis machines thus increasing the risk of incorrect information being provided by the company.

A cash flow forecast prepared internally showed Pinto requiring significant additional cash within the next 12 months to maintain even the current level of services and operations. Pinto’s auditors have been asked to provide a negative assurance report on this forecast.

Required:
i) Define going concern and discuss the auditor’s responsibilities in respect of going concern.
(4 marks)

ii) State FIVE (5) audit procedures that may be carried out to determine whether or not Pinto is a going concern.
(6 marks)

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  • 5 Marks

AA – May 2021 – L2 – Q2b – udit and Assurance Risk Environment, Completion Procedures and Reporting

State audit tests necessary to determine if an entity is a going concern.

ISA 570: Going Concern guides auditors to ensure that an entity can continue to operate into the foreseeable future.

Required:
State TWO (2) audit tests necessary to ascertain whether an entity is a going concern. (5 marks)

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  • 10 Marks

AA – May 2018 – L2 – Q3b – Audit and Assurance Risk Environment, Completion Procedures and Reporting

Explains the importance of professional skepticism and audit procedures for subsequent events in the audit process.

ii) Auditors are required to plan and perform an audit with professional skepticism, to exercise professional judgment, and to comply with ethical standards.

Required:
Explain what is meant by ‘professional skepticism’ and why it is so important that the auditor maintains professional skepticism throughout the audit. (5 marks)

b)
i) International Standard on Auditing (ISA) 560: Subsequent Events deals with the auditor’s responsibility towards events that occur after the reporting date and especially before the auditor’s report is issued.

Required:
Explain FIVE audit procedures to test subsequent events. (5 marks)

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  • 15 Marks

AAA – May 2019 – L3 – Q6 – Audit Reporting

Assess the impact of lost audit journals, actions required under ISA 570, and communication duties of auditors.

During the recent audit of Ogundu Commercial Limited, a privately owned trading company, you discovered that the former chief accountant resigned immediately after the conclusion and approval of the previous audited financial statements. The new chief accountant came in during the month of May and was working at familiarizing himself with the systems and financial operations of the company; and also ensuring that the accounting records are ready for the board of directors’ quarterly meetings and finalizing the accounts for the next audit.

Due to the pressure of work, the chief accountant lost part of the journals raised by the previous auditors but proceeded to finalize the accounts. This resulted in least expected financial performance for the year. The previous auditor is a sole practitioner and is now deceased.

The directors are concerned because the financial statements would be used to seek facilities from banks. The success or otherwise of the facility will impact the operations of the company and may lead to a reduction in both operation and staff engagement.

Required:
a. Evaluate the effect of the loss of the audit journals on the financial statements and the factors you would consider, as auditors, in drafting your report. (5 Marks)
b. In accordance with ISA 570, evaluate the actions required of the auditors in relation to the observed misstatement. (5 Marks)
c. Discuss the content of the communication expected of the auditors to the client before and after the audit, other than the auditors’ report. (5 Marks)

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  • 20 Marks

AAA – May 2019 – L3 – Q4 – Review of Subsequent Events and Going Concern Assumptions

Analyze the auditor's objectives, implications of going concern assumptions, directors' responsibilities, and risk assessment for going concern status.

Itanforiti Publishers Limited has been in the printing and publishing business for many years in Ibadan. The company has been performing well with a competitive advantage over many companies in the industry as a result of the engagement of a high-profile team of personnel and in-house printing of its published books.

The board of directors comprises two brothers and their wives. The older brother is the chairman, and the younger, the managing director. The fortunes of the company started dwindling in 2013 when conflicts could no longer be resolved amicably among the members of the board of directors.

The chairman, being a majority shareholder, assumed executive powers by combining the roles hitherto played by the managing director with his own as executive chairman in 2015. Governance of the company became unsettled, and key staff of the organization started resigning in turn.

In 2016, the financial reports of the company revealed its inability to pay creditors, and the supply of raw materials became irregular. In addition, the level of receivables became too high with a significant figure of doubtful and irrecoverable debts.

Your firm acts as auditors to the company, and you have been presented with the financial statements for the year ended 31st December 2017, for audit. The financial statements were prepared on a going concern basis.

Required:
a. Identify and explain the objectives of the auditor in the area of going concern in accordance with International Standards on Auditing (ISA 570). (5 Marks)
b. Explain the going concern assumption and the implications for the financial statements if the entity is not a going concern. (5 Marks)
c. Explain the going concern duties of the directors. (3 Marks)
d. Evaluate the risk assessment procedures to be performed by the auditor on the going concern status of the entity. (ISA 570). (7 Marks)

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  • 5 Marks

AA – May 2016 – L2 – Q4a – Completion Procedures and Reporting

This question outlines the external auditor's responsibilities and the work required regarding the going concern status of a company.

(a) Describe external auditor’s responsibilities and the work that the auditors must perform in relation to the going concern status of companies. (5 marks)

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  • 7 Marks

AA – Nov 2015 – L2 – Q2c – Audit and Assurance Risk Environment, Completion Procedures and Reporting

This question covers auditors’ responsibilities for subsequent events and going concern assessments, as well as internal control reporting.

c) Technolab has an internal audit department. The partner in charge of the audit is seeking clarification regarding how any deficiencies in internal control should be identified and communicated to management. The partner feels the report produced by the external auditors may duplicate the report produced by the internal audit function.

Required:
Explain how the purpose and content of an internal auditor’s report on internal control deficiencies differ from one prepared by the external auditor.
(7 marks)

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  • 14 Marks

AA – Nov 2015 – L2 – Q2a and b – Audit and Assurance Risk Environment, Completion Procedures and Reporting

This question covers auditors’ responsibilities for subsequent events and going concern assessments, as well as internal control reporting.

You are an audit senior for an audit firm and are currently working on the audit of Technolab, a company that produces sophisticated electronic laboratory equipment. The company imports a high proportion of the components it uses from China. The equipment is used by some laboratories dealing with hazardous chemicals.

As the audit draws to a close, the partner in charge has asked you to ensure that all procedures relating to subsequent events and going concern are properly performed. You are to consider the audit work to be performed in relation to ISA 560 Subsequent Events and ISA 570 Going Concern.

Required:

a) Describe the auditor’s responsibilities for subsequent events occurring between:
i. The year-end date and the date the auditor’s report is signed.
ii. The date the auditor’s report is signed and the date the financial statements are issued.
(6 marks)

b) Going concern relates to the judgment that an entity will continue to trade for the foreseeable future.
i. Explain the responsibilities of directors and auditors in relation to going concern.
(3 marks)
ii. Explain the audit procedures that the auditor could carry out when conducting the going concern review of Technolab.
(4 marks)

c) Technolab has an internal audit department. The partner in charge of the audit is seeking clarification regarding how any deficiencies in internal control should be identified and communicated to management. The partner feels the report produced by the external auditors may duplicate the report produced by the internal audit function.

Required:
Explain how the purpose and content of an internal auditor’s report on internal control deficiencies differ from one prepared by the external auditor.
(7 marks)

Total: 20 marks

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  • 10 Marks

AA – May 2017 – L2 – Q3c – Completion Procedures and Reporting

Audit procedures for determining if PharmaCo can continue as a going concern.

PharmaCo provides scientific services to a wide range of clients. Typical assignments range from testing food for illegal additives to providing forensic analysis on items used to commit crimes to assist law enforcement officers.

The annual audit is nearly complete. As audit senior, you have reported to the engagement partner that PharmaCo is having some financial difficulties. Income has fallen due to the adverse effect of two high-profile court cases by customers who bought drugs from the company.

Required:
Explain the audit procedures that may be carried out to determine whether or not PharmaCo has the ability to continue as a going concern entity.

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  • 10 Marks

AA – May 2020 – L2 – Q4a – Audit and Assurance Evidence

Identify who is responsible for ensuring the going concern basis in preparing financial statements.

Your audit firm has almost completed the audit of SG Ltd. At the review stage, the audit manager assembled the engagement team and wanted to find out whether the audit evidence obtained shows that the company is a going concern.

Required:
i) Outline whose responsibility it is to ensure that the going concern basis used in the preparation of the financial statements is reasonable and acceptable.
(7 marks)

ii) Outline with examples the THREE (3) broad classifications of going concern indicators. (3 marks)

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  • 10 Marks

AA – Aug 2022 – L2 – Q4a – Completion Procedures and Reporting

Defines going concern and discusses the auditor's responsibilities and procedures in relation to going concern.

Pinto Ltd (Pinto) provides analytical services to a wide range of clients. Typical assignments range from testing food for illegal additives to providing forensic analysis on items used to commit crimes to assist law enforcement officers.

The annual audit is nearly complete. As Audit Senior, you have reported to the Engagement Partner that Pinto is having some financial difficulties. Income has fallen due to the adverse effect of two high-profile court cases, where Pinto’s services to assist the prosecution were found to be in error. Not only did this provide adverse publicity for Pinto, but a number of clients did not renew their contracts. A senior employee then left Pinto, stating lack of investment in new analysis machines thus increasing the risk of incorrect information being provided by the company.

A cash flow forecast prepared internally showed Pinto requiring significant additional cash within the next 12 months to maintain even the current level of services and operations. Pinto’s auditors have been asked to provide a negative assurance report on this forecast.

Required:
i) Define going concern and discuss the auditor’s responsibilities in respect of going concern.
(4 marks)

ii) State FIVE (5) audit procedures that may be carried out to determine whether or not Pinto is a going concern.
(6 marks)

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  • 5 Marks

AA – May 2021 – L2 – Q2b – udit and Assurance Risk Environment, Completion Procedures and Reporting

State audit tests necessary to determine if an entity is a going concern.

ISA 570: Going Concern guides auditors to ensure that an entity can continue to operate into the foreseeable future.

Required:
State TWO (2) audit tests necessary to ascertain whether an entity is a going concern. (5 marks)

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You're reporting an error for "AA – May 2021 – L2 – Q2b – udit and Assurance Risk Environment, Completion Procedures and Reporting"

  • 10 Marks

AA – May 2018 – L2 – Q3b – Audit and Assurance Risk Environment, Completion Procedures and Reporting

Explains the importance of professional skepticism and audit procedures for subsequent events in the audit process.

ii) Auditors are required to plan and perform an audit with professional skepticism, to exercise professional judgment, and to comply with ethical standards.

Required:
Explain what is meant by ‘professional skepticism’ and why it is so important that the auditor maintains professional skepticism throughout the audit. (5 marks)

b)
i) International Standard on Auditing (ISA) 560: Subsequent Events deals with the auditor’s responsibility towards events that occur after the reporting date and especially before the auditor’s report is issued.

Required:
Explain FIVE audit procedures to test subsequent events. (5 marks)

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