how long does is the going concern asusmption and who is it made by
going concern relates to a period of one year of the company continuing to be in operations and is made by management
what is the auditors responsibility in relation to going concern
it is their responsibility to gather SAAE about the appropriateness of managements going concern asusmtions and if there is any material issues in this conern
if the going concern is valid, hoes does the i/s and sfp look
- i/s inc and exp are recorded normally
- sfp - PPE are recorded as cost less accum depr
if the going concern is not valid, how does the i/s and sfp look?
- i/s - no sales revenue and no depreciation
- sfp - PPE valued at net realizable value
what is net realizable value for ppe in sfp
essentially how much ppe can be sold for less the cost needed to prepare it for sale
during what part of the audit do auditors look at events or conditions regarding going concern and is it restricted to this time?
they look at it mainly during the risk assessment stage
although, it should be done throughout the entire process
t/f, the auditor shall remain alert throughout the audit for audit evidence of events that may cast significant doubt on the entitys ability to continue as going concern
obviously true you donkey look at the complicated wording
what models do auditors use as analytical procedures for risk assessment
bankruptcy prediction model
how does the bankruptcy prediction model work?
use publicly available data to estimate the probaibility of bankruptcy or classify the firm as fail or non-fail
if events or conditions have been identified that may cast significant doubt on entities ability to continue as a going concern, wha should the auditor do
- obtain SAAE to determine whether or not a material uncertainty exists
- obtain mitigating factors
what are mitigating factors
-LOC availability
- debt extensions
- reduction of dividend payment
what are the 5 procedures done for going concern
- request managment to make assessment of going conern where it has not
- evalaute the future plans and results of the plans related to mitigation of going concern
- evalaute prepared cash flow forecasts
- consider whetehr additional infomariton or facts have become available since teh managment made the assessemnet
- request written represenatation from mamangement and ask them to specify future plans and feasability of them
is going conecrn assessment relient on manament, why or why not
yes, it is because we take their word for the assessment
if mgm assessement of gc is not valid what should auditors do
expressd an adverse opinion
is mgm gc is valid but htere is material uncertainty, what is done (2 options)
- adequate disclosure is given in the form of an unmodified opinion and a seperate explaning sention in audit report (apart from emphasis of matter)
- no adequate discllsure - issue qualified or adverse opinion
if gc is valid and no material uncertainty is present hat should be done
an unmodified opnion is isseus
why is it difficult to audit going concern (3)
- the further into the future the gc is made, the more uncertanty there is
- the size, compexity of the entiy and nature of the business
- judgement about the future is made only on information available today
what reduces the auditors liability in the auditors report?
the absence of amterial uncertainty regarding gc cannot be viewed as a guarantee as to the entity’s ability to continue as a going conern
when are accounting estimates requered
required by mgm when monetary amounts cannot be directly observed
what is the process in making acoutning estiamtes
select and apply a method using assumtions and data by applying judgemnent which makes the estiamtes complex to measure
what are 7 examples of accounting estimate
- PPE depreciation
- vlaution of infrastrcutere
- valuation of finanacial instriment
- outcome of pending litigation
- warranty obligations
- revenue recognitionn for long-lived contracts
- inventory obselescenes
what are hte 3 most complex accoutning estiamtes
- financial instruments
- gw impairment
- pension (actuarial) liabilities
what estimation model evaluates gw?
business valuation of variables, such as timing of cashflows, growth, discounts
what estimation model is used for evaluation pensions
actuarial paramenters such as survival rates, attrition rates
