Audit Review

Edited By: Salim Saifullah-Al-Ahsan, Bsc Hons (OBU) UK, ACCA (Finalist)

Subsequent events Subsequent events are events occurring between the date of the financial statements and the date of the auditor's report, and facts that become known to the auditor after the date of the auditor's report. IAS 10 Events after the reporting period deals with the treatment in the financial statements of events, both favourable and unfavourable, occurring after the period-end. There are two types of event defined by IAS 10: Adjusting Event events Non-adjusting events Settlement of a court case Sale of inventory after year-end providing evidence of its NRV at year-end Fraud or error showing the accounts are incorrect Non- Adjusting Event Dividends declared after the year-end Fire causing destruction of major plant Announcement of a major restructuring

Audit procedures that are recommended regarding subsequent events review ISA560 Adjusting event: Simply requires adjustment in F/s e.g. Inventory sold @ NRV below cost, bankrupt debtor etc. In these circumstance auditor need to check whether appropriate adjustments made for the event as per IAS 10. Non adjusting event: Dont require any adjustment may need disclosure depending on materiality .e.g. natural disaster damaging inventory etc. Similarly auditors need to ensure whether disclosures in notes have been made. Audit procedures: Regarding subsequent events review Enquire: Into management system for any updates To directors about matters not yet recorded in minutes e.g. Provisions relevant to restructuring should be evidenced by minutes. Letter of representation Who made the representation, whether matters have been edited prior to representation Review: Minutes and match it with known or informed facts Accounting records e.g. Material figures rechecked Correspondence with customers, lawyers and suppliers Perform : Normal post B/S work

Going concern ISA 570 Going concern provides guidance to auditors in this area. The objectives of the auditor are: To obtain sufficient appropriate audit evidence regarding the appropriateness of managements use of the going concern assumption To conclude whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entitys ability to continue as a going concern To determine the implications for the auditors report

ISA 570 includes examples of events or conditions that may cast doubt about the going concern assumption. These fall under three headings: financial, operating and other, and are shown in the table below: Events or conditions that may cast doubt about the going concern assumption Financial Net liability or net current liability position Excessive reliance on short-term borrowings to finance long-term assets Withdrawal of financial support by creditors Negative operating cash flows Adverse key financial ratios Substantial operating losses or significant deterioration in the value of assets used to generate cash flows. Operating Management intentions to liquidate or cease operations Loss of key management without replacement Loss of a major market, key customers, licence, or principal suppliers

Labour difficulties Shortages of important supplies Emergence of a highly successful competitor

Other Non-compliance with capital or other statutory requirements Pending legal or regulatory proceedings against the entity Changes in law or regulations that may adversely affect the entity

The impact of going concern on the audit report as per ISA 570 Going concern appropriate, but material uncertainty exists > Check whether disclosures have been made addressing this material uncertainty; Auditors can use emphasis of matter paragraph for Inadequate disclosure > Express a qualified opinion on the grounds of disagreements