Ch 10- Completion

Question 1

RAPID
(Reporting questions

Answer 1

Returns from branches not visited- (Not received)
Accounts don’t agree -to underlying records (i.e TB)
Proper accounting records- haven’t been kept (e.g. destroyed in fire/cyber attack).
Info & explanations not received- (same as last point or if they refuse to give letter of rep)
Directors disclosures -haven’t been made (never seen tested)

Question 2

Subsequent events

Answer 2

Event occurring between fin stmt and auditors report, and facts that become known to auditor after their report.
ISA 560-requires auditors to obtain evidence, to report on adjustments and disclosures

**IAS 10- Events after the reporting period **:
-Adjusting events
-Non-adjusting events

Question 3

IAS 10 (adjusting events)

Answer 3

Events that provide additional evidence relating to conditions existing at reporting date. (Finance statements adjusted to reflect new info)

Examples
* Allowances for damaged stock
* Insurance claims being negotiated at reporting date
* Agreement of tax liability
* Discovery of errors/fraud (revealing fin stmt’s are incorrect)

Question 4

IAS 10 (non- adjusting events)

Answer 4

Events concerning conditions that arose after the reporting date. In order to prevent a misleading position, disclosure is required to indicate what effect the events may have. These will not have any effect on the figures in the financial statements for this particular period

Examples
* Issue of new share or loan capital
* Major changes in composition of the group (mergers, acquisitions etc.)
* Losses of stock due to fires or floods.
* Strikes, government action etc.
* Purchases/sales of significant non-current assets

Question 5

Auditors responsbilities on subsequent events

Answer 5

before audit report is signed off
* Procedures carried out to ensure correct accounting treatment/disclosures
* If adjustments/disclosures aren’t made, auditor will ask management to make necessary amendments.
* If amendments aren’t made after this, need to consider impact on audit report (modify opinion?)
*

* After the audit report issued*
* no obligation to perform further procedures but must take action if they become aware of any events which woulf cause a modified opinion.
* Auditor will notify mgmt and TCWG not to issues statements until any amendments are made.
* If client issues statements (ignores above point), seek legal advice in order to prevent reliance on the reports.

After financial statements are issued
* No obligation to perform audit procedures but if they become aware of a fact which would have caused them to amend the auditors report , they must take action.
* Auditor should discuss matter with management and consider if the financial statements require amendment.
* Perform audit procedures on the amendments to ensure they have been put through correctly.
* Auditor to ensure all users of previous (incorrect) report, are informed.
* Auditor issues an “emphasis of matter” or “other matters” paragraph to draw attention to the amendements made.
* If mgmt refuses, auditor shall take legal action to prevent reliance on teh reports.

Question 6

Subsequent events procedures

Answer 6

• Enquire with management if they are aware of any events (adjusting/non-adjusting) that have not yet been included/disclosed
• Enquiring into management procedures/systems for identification of events after reporting period.
• Reading minutes of members/directors meetings
• Reviewing accounting records (budgets, forecasts, cash flows. management reports, interim info)
• Obtain written representation from management that they have informed auditor of all subsequent events
• Inspect correspondence with legal advisors
• Review progress of known risk areas and contigencies
• Consider relevant public knowledge, competitors, suppliers and customers
• Inspected after date receipts
• Inspecting after date bank for items not accrued
• Inspecting sales price of stock after YE
  *

Question 7

Going concern

Answer 7

Assumption that entity will continue in business for the foreseeable future.
Other than the enquiry of management, the auditor has no responsbility to identify events beyond period assessed

Management must prepare financial statements on most appropriate basis:
going concern or break-up basis
Disclosure in fin stmt’s should explain: events or conditions that cast significant doubt on entity’s ability to continue as a going concern (and mgmt’s plans to deal with them)

Question 8

Going concern procedures

Answer 8

• Analyse & discuss financials with mgmt
• Review and determine whether any debentures or loan agreements have been breached
• Read minutes of meetings in reference to financial difficulties
• Enquire of clients legal representatives for reasonableness of mgmt assessments.
• Review subsequent events to identify mitigating/aggravating abilities to continue as a going concern
• Review correspondence with customers over disputes that may impact recoverability
• Same as above but for creditors
• Review bank correspondence for indication that loan or overdraft may be recalled
• Obain written representation from management regarding plans or the future and how it plans to address going concern issues.

Question 9

Indicators of going concern risk

Answer 9

• Vulnerability to social, enviornmental and sustainability issues (e.g. nature disasters, climate changs, extreme weather and depletion of natural resources)
• Supply shortage
• Apporaching borrowing limits
• Loss of key staff
• Loss of key suppliers or customers
• Significant changes to laws and regulations
• Deteriorating financial ratios