Completion and Review
5 theoretical questions from ICAI Study Material
Download original PDFAnswer:
In the given case scenario the events and conditions have been identified which cast significant doubt on the entity's ability to continue as a Going Concern, the auditor needs to obtain sufficient appropriate audit evidence to determine whether or not material uncertainty and gather evidence including of mitigating factors. It can be done by performing following additional procedures: - • Analysing and discussing cash flow, profit and other relevant forecast with management. • Analysing and discussing the entity's latest available interim financial statement. • Reading the terms of loan agreements and determining whether any have been breached. • Reading minutes of the meetings of shareholders, those charged with governance and relevant committees for reference to financing difficulties. • Inquiring of the entity's legal counsel regarding the existence of litigation and claims and the reasonableness of management's assessments of their out come and the estimate of their financial implications. • Confirming the existence, legality and enforceability of arrangements to provide or maintain financial support with related and third party and assessing the financial ability of such parties to provide additional funds. • Performing audit procedures regarding subsequent events to identify those that either mitigate or otherwise affect the entity's ability to continue as a going concern. • Confirming the existence, terms and adequacy of borrowing facilities. • Where management has not yet performed an assessment of the entity's ability to continue as a going concern, requesting management to make its assessment. • Evaluating management's plans for further actions in relation to its going concern assessment, whether the outcome of these plan is likely to improve the situation and whether the management's plans are feasible in the circumstances. • Evaluating management's plans for future actions may include inquiries of management as to its plan for future action, including, for example, its plan to liquidate assets, borrow money or restructure debt, reduce or delay expenditures, or increase capital. • Considering whether any additional facts or information have become available since the date on which management made it assessment. • Requesting written representation from management and, where appropriate, those charged with governance, regarding their plans for future actions and the feasibility of these plans.
Answer:
When performing risk assessment procedures as required by SA 315, the auditor shall consider whether events or conditions exist that may cast significant doubt on the entity's ability to continue the going concern. In so doing, the auditor shall consider whether management has already performed a preliminary assessment of the entity's ability to continue as a going concern. • The auditor shall discuss the assessment with management and determine whether management has identified events and conditions that, individually or collectively, cast significant doubt on the entity's ability to continue as a going concern and if so, management's plan to address them. • The auditor shall specifically draw attention of Management on following events or condition and get the response on how they plan to address them: The company is debt heavy and over leveraged. The leased properties are having considerable lock-in period with absence of force majeure clause. There are no contingency reserves available with company. All these factors shall be taken into account while performing risk assessment procedures. COMPLETION AND REVIEW 6.21
Answer:
If the auditor concludes that the management's use of going concern basis of accounting is appropriate in the circumstances but a material uncertainty exists, the auditors shall determine whether the financial statements: (a) Adequately disclose the principal events or conditions that make a significant doubt on the entity's ability to continue as a going concern and management's plan to deal with these events or conditions, and (b) Disclose clearly that there is a material uncertainty related to events or conditions that may cast significant doubt on entity's ability to continue as a going concern and therefore, that it may be unable to realize its assets, and discharge its liabilities in the normal course of business. (c) The disclosures may include: i. Management's evaluation of the significance of the events or conditions relating to the entity's ability to meet its obligations; or ii. Significant judgements made by management as a part of its assessment of the entity's ability to continue as a going concern iii. Disclosures about the magnitude of the potential impact of the principal events or conditions, and the likelihood and timing of the occurrence. iv. The auditor shall express and unmodified opinion and the auditor’s reports shall include a separate section under the heading "Material Uncertainty Related to Going Concern" to: • Draw attention to the note in the financial statement that discloses the events or conditions and • State that these events are conditions indicate that a material uncertainty exists that may cast significant doubt on the entity's ability to continue as a going concern and the auditor's opinion is not modified in respect of the matter and how the matter was addressed in the audit.
Answer:
If management has prepared financial statements using the Going Concern assertion to which auditor differs as according to his judgement, the Going Concern assertion by the management is not appropriate, then the auditor is required to express an adverse opinion.
Answer:
The auditor needs to obtain written representation from management and where appropriate, those charged with governance, regarding their plans for future action and the feasibility of these plans. 6.22