Disclosure – Knowsia

AAA – L3 – Q3 – Going Concern

Audit manager reviews a client with going concern issues where directors refuse to disclose a required note in financial statements.

Question

As the Audit Manager of Zelton & Associates, you are responsible for conducting reviews on audit files where there is potential disagreement between your firm and clients.

You are looking at DuaKonta LTD’s audit file’s going concern section. DuaKonta LTD is a client with severe cash flow issues as well as other, less significant operational signs of going concern issues.

According to the working papers, DuaKonta LTD is now attempting to raise funds to support its operating cash flows, and if the funds are not obtained, there will be serious uncertainty over the company’s ability to continue as a going concern. After reviewing the working papers, it came to light that the going concern assumption is appropriate. However, it is advised that the financial statements include a note outlining the company’s cash flow issues, a description of the financing being sought and an assessment of the company’s going concern status. The Directors of DuaKonta LTD do not wish to include the note in the financial statements.

Required:
a) Compare and contrast the responsibilities of Management and of Auditors, in relation to the assessment of going concern. You should include a description of the procedures used in this assessment where relevant.

b) Consider and comment on FOUR possible reasons the Directors of DuaKonta LTD are reluctant to provide the note to the financial statements.

c) Identify and discuss the implications for the auditor’s report if:
i) The directors refuse to include the disclosure note.
ii) The directors agree to include the disclosure note

Answer

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Tags: Auditor Responsibility, Disclosure, Financial Statement Notes, Going Concern, ISA 570, Management Responsibility, Material Uncertainty, Modified Audit Report
Level: Level 3

Topic: Evaluation and review, Reporting

AAA – L3 – SA – Q4.10 – Reporting

What should an auditor do if a material uncertainty about going concern is disclosed?

Question

A company prepares its financial statements on a going concern basis, but a material uncertainty exists about the ability of the company to continue as a going concern which is fully disclosed by management in the financial statements. In this situation, what shall the auditor do?

A The auditor’s report shall contain a ‘Material Uncertainty Related to Going Concern’ paragraph

B The auditor’s report shall state an adverse opinion

C The auditor’s report shall state a disclaimer of opinion

D The auditor’s report shall contain an ’emphasis of matter’ paragraph

Answer

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Tags: Auditor’s Report, Disclosure, Financial Statements, Going Concern, Material Uncertainty
Level: Level 3

Topic: Reporting

AAA – L3 – SA – Q2.2 – Confidential Information Disclosure

Permissible disclosure of client confidential information.

Question

In which of the following circumstances would it be permissible for an auditor to disclose confidential information about a client?

A To assist the firm with the audit of another client in the same industry

B To inform shareholders when disclosure is in the public interest

C To protect the interests of the shareholders

D To defend the firm against an official accusation of professional negligence.

Answer

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Tags: Confidentiality, Disclosure, ICAG, Professional Ethics
Level: Level 3

Topic: Rules of Professional Conduct

BCL – L1 – Q108 – Governance and ethical issues relating to business

How company law ensures corporate transparency and disclosure to protect stakeholders.

Question

How does company law address issues of corporate transparency and disclosure to protect the interests of stakeholders?

Answer

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Tags: Company Law, Corporate Governance, Corporate transparency, Disclosure, Stakeholder protection
Level: Level 1

Topic: Governance and ethical issues relating to business

SCS – L3 – Q17 – Professional practice and codes of ethics

Identify three situations at NTM conflicting with IFAC's Code of Ethics.

Question

At its recent Annual General Meeting, management of NTM was highly criticized for two major scandals that occurred in the organization during the year. In one case, newspapers reported that the management of the company connived with officials at the port to undervalue imports in order to pay lower taxes. In the other case, it was reported that the accountant leaked information to his friend who was bidding for a contract in the company. The Board Chairman, who is also the Chief Executive Officer of the company apologized for these incidents but did not disclose that the company had been sued in respect of the first case. He went on to promise the shareholders that the fortunes of the company would change dramatically by the end of the new year as the company was going to start exporting its products to Europe within the next few weeks.

Required:
(a) Identify and explain THREE situations that are in conflict with the International Federation of Accountants (IFAC)’s Code of Ethics.

(b) Explain FOUR disadvantages of the CEO acting also as the Chairman of the Board.

Answer

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Tags: Confidentiality, Conflicts of Interest, Corporate Governance, Disclosure, Ethics, IFAC Code, Integrity, Stakeholder Management
Level: Level 3

Topic: Professional practice and codes of ethics

Tag (SQ): Disclosure

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AAA – L3 – Q3 – Going Concern

Audit manager reviews a client with going concern issues where directors refuse to disclose a required note in financial statements.

AAA – L3 – SA – Q4.10 – Reporting

What should an auditor do if a material uncertainty about going concern is disclosed?

AAA – L3 – SA – Q2.2 – Confidential Information Disclosure

Permissible disclosure of client confidential information.

BCL – L1 – Q108 – Governance and ethical issues relating to business

How company law ensures corporate transparency and disclosure to protect stakeholders.

SCS – L3 – Q17 – Professional practice and codes of ethics

Identify three situations at NTM conflicting with IFAC's Code of Ethics.

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Tag (SQ): Disclosure

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AAA – L3 – Q3 – Going Concern

Audit manager reviews a client with going concern issues where directors refuse to disclose a required note in financial statements.

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AAA – L3 – SA – Q4.10 – Reporting

What should an auditor do if a material uncertainty about going concern is disclosed?

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AAA – L3 – SA – Q2.2 – Confidential Information Disclosure

Permissible disclosure of client confidential information.

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BCL – L1 – Q108 – Governance and ethical issues relating to business

How company law ensures corporate transparency and disclosure to protect stakeholders.

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SCS – L3 – Q17 – Professional practice and codes of ethics

Identify three situations at NTM conflicting with IFAC's Code of Ethics.

You're reporting an error for "SCS – L3 – Q17 – Professional practice and codes of ethics"

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