Chapter 11, 12 & 13

Question 1

Adjusting events

Answer 1

Provide additional evidence about conditions existing at the SOFP date

Question 2

Non-adjusting events

Answer 2

Provide evidence about conditions arising after the SOP date

If non-adjusting events impact the going concern assumption, the event becomes an adjusting event

Question 3

Going concern concept

Answer 3

The assumption that the entity will continue in business for the foreseeable future (min of 12 months from the date of the FS)

Question 4

Director’s responsibilities for a going concern approach

Answer 4

• Assess the company’s ability to continue as a going concern
• Prepare a forecast to help with the assessment
• disclose any material uncertainties relating to the going concern in the FS

Question 5

Auditor’s responsibilities for a going concern approach

Answer 5

• Evaluate the appropriateness of management’s use of the going concern assumption
• conclude whether a material uncertainty exists and if so, assess the adequacy of he client’s disclosure
• report in accordance with ISA 570 Going Concern

Question 6

Indicators of going-concern problems

Answer 6

High net liabilities
Inability to obtain credit from suppliers
Sale of NCA to fund operating costs
Loss of key staff
Negative cash flow
borrowing facilities not agreed or close to expiry of current agreement
over-reliance on a small number of customers or products
increasing competition

Question 7

Written representation letter

Answer 7

A written statement by management provided to the auditor to confirm certain matters or to support other audit evidence.

This letter must be signed and dated before the auditor’s report is finalised.

Question 8

The objective of an auditor

Answer 8

• to form an opinion on the FS based upon an evaluation of their conclusions drawn from audit evidence
• to express that opinion clearly through a written report

Question 9

Auditor’s opinion - Misstatement

Answer 9

Not material - unmodified opinion
Material but not pervasive - qualified opinion
Material and pervasive - Adverse opinion

Question 10

Auditor’s opinion - Inability to obtain sufficient appropriate audit evidence

Answer 10

Not material - unmodified opinion
Material but not pervasive - qualified opinion
Material and pervasive - Disclaimer of opinion

Question 11

A matter is considered pervasive when in the auditor’s judgement:

Answer 11

• the effects are not confined to specific areas of the FS
• Could reflect a significant portion of the FS
• are fundamental to user’s understanding of the FS