ISA 570 – 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

Question Title: AA – L2 – Q71 – Subsequent Events

Describe auditor's responsibilities for subsequent events between year-end and report signing, and post-signing to issuance.

Question

You are an audit senior for an audit firm and are currently working on the audit of TechWorks Co, a company which 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 judgement 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 audit could carry out when conducting the going concern review of TechWorks Co.

(c) TechWorks Co has an internal audit function. 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 produced by the internal audit function.

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

Answer

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Tags: Audit Procedures, Going Concern, ISA 570, Responsibilities
Level: Level 2

Topic: Internal Audits

AA – L2 – Q37 – Audit of Financial Statements

Describe external auditor's responsibilities and work for going concern assessment. Describe auditor's reports for going concern issues and their circumstances. List considerations for recommending internal controls for cash sales in a garage.

Question

(a) Describe external auditor’s responsibilities and the work that the auditors must perform in relation to an audit client’s ability to continue as a going concern.

(b) Describe the possible auditor’s reports that can be issued where the ability of a company to continue as a going concern status is called into question; your answer should describe the circumstances in which they can be issued.

(c) You have been asked by your client, a garage proprietor, to advise on a system of internal control for cash sales. Set out the points you would take into consideration before giving your recommendations.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Evidence, External auditor, Going Concern, ISA 570, Risk Assessment
Level: Level 2

Topic: Audit of Financial Statements

Tag (SQ): ISA 570

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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.

Question Title: AA – L2 – Q71 – Subsequent Events

Describe auditor's responsibilities for subsequent events between year-end and report signing, and post-signing to issuance.

AA – L2 – Q37 – Audit of Financial Statements

Describe external auditor's responsibilities and work for going concern assessment. Describe auditor's reports for going concern issues and their circumstances. List considerations for recommending internal controls for cash sales in a garage.

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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.

You're reporting an error for "AAA – L3 – Q3 – Going Concern"

Question Title: AA – L2 – Q71 – Subsequent Events

Describe auditor's responsibilities for subsequent events between year-end and report signing, and post-signing to issuance.

You're reporting an error for "Question Title: AA – L2 – Q71 – Subsequent Events"

AA – L2 – Q37 – Audit of Financial Statements

Describe external auditor's responsibilities and work for going concern assessment. Describe auditor's reports for going concern issues and their circumstances. List considerations for recommending internal controls for cash sales in a garage.

You're reporting an error for "AA – L2 – Q37 – Audit of Financial Statements"

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