Day 4

1.
2.
3.
4.
5.

Audit for inventory

Subsequent events
Going concern
Review
Case

1. Inventory

Audit objective for inventory

1. Inventory

1. Inventory

1. Inventory

1. Inventory
Inventory count

1. Inventory
Inventory
count

1. Inventory

Inventory count

Question
In connection with your examination of the financial statements of Camry
Products Co, a limited liability company, for the year ended 31 March 20X9,
you are reviewing the plans for a physical inventory count at the company's
warehouse on 31 March 20X9. The company assembles domestic appliances,
and inventory of finished appliances, unassembled parts and sundry inventory
are stored in the warehouse which is adjacent to the company's assembly
plant. The plant will continue to produce goods during the inventory count
until 5pm on 31 March 20X9. On 30 March 20X9, the warehouse staff will
deliver the estimated quantities of unassembled parts and sundry inventory
which will be required for production for 31 March 20X9; however, emergency
requisitions by the factory will be filled on 31 March. During the inventory
count, the warehouse staff will continue to receive parts and sundry inventory,
and to dispatch finished appliances. Appliances which are completed on 31
March 20X9 will remain in the assembly plant until after the count has been
completed.
Required
(a) List the principal procedures which the auditors should carry out when
planning attendance at a company's physical inventory count.
(b) Describe the procedures which Camry Products should establish in order to
ensure that all
inventory items are counted and that no item is counted twice

4. Audit review and finalisation

4.1 Subsequent events
Subsequent events are events occurring
between the period-end and the date of
the auditor's report and also include facts
discovered after the auditor's report has
been issued. Auditors shall consider the
effect of such events on the financial
statements and on their audit opinion.

4.1 Subsequent events

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:
Those that provide evidence of conditions that
existed at the year-end date (adjusting
events)
Those that are indicative of conditions that
arose after the year-end date (non-adjusting
events)

4.1 Subsequent events

Example

4.1 Subsequent events

Example

4.1 Subsequent events

ISA 560 Subsequent events provides guidance to
auditors in this area. The objectives of the auditor
are:
To obtain sufficient appropriate audit
evidence about whether, events occurring
between the date of the financial statements
and the date of the auditor's report that need
adjustment or disclosure in the financial
statements, are properly reflected in the
financial statements
To respond appropriately to facts that
become known to the auditor after the date
of the auditor's report which may have
caused the auditor to amend the auditor's

4.1 Subsequent events

Auditors have a responsibility to
review subsequent events before
they sign the auditor's report, and may
have to take action if they become
aware of subsequent events between
the date they sign the auditor's report
and the date the financial statements
are issued.

4.1 Subsequent events

4.1 Subsequent events

1. Events occurring up to the date of the
auditor's report
The auditor shall perform procedures designed to
obtain sufficient appropriate audit evidence that all
events up to the date of the auditor's report that
may require adjustment of, or disclosure in, the
financial statements have been identified.
These procedures should be applied to any matters
examined during the audit which may be susceptible
to change after the year-end. They are in addition to
tests on specific transactions after the period
end, eg cut-off tests.

4.1 Subsequent events

2. Facts discovered between the date of the
auditor's report and the financial statements are
issued
The financial statements are the management's
responsibility. They should therefore inform the auditors
of any material subsequent events between the
date of the auditors' report and the date the financial
statements are issued. The auditor does not have any
obligation to perform procedures, or make
enquires
regarding the financial statements, after the date of the
report.

4.1 Subsequent events

2. Facts discovered between..
However if the auditor becomes aware of a fact that,
had it been known to the auditor at the date of the
auditor's report, may have caused the auditor to
amend the auditor's report, the auditor shall:
Discuss the matter with management and those
charged with governance.
Determine whether the financial statements need
amendment.
If amendment is required, inquire how
management intends to address the matter in the
financial statements.

4.1 Subsequent events

3. Facts discovered after the financial statements
have been issued
Auditors have no obligations to perform procedures
or make enquiries regarding the financial statements
after they have been issued.
However if the auditor becomes aware of a fact that,
had it been known to the auditor at the date of the
auditor's report, may have caused the auditor to
amend the auditor's report, the auditor shall:
Discuss the matter with management and those
charged with governance.
Determine whether the financial statements need
amendment.
If amendment is required, inquire how
management intends to address the matter in the

4.1 Subsequent events

If management amends the financial statements, the

auditor shall carry out any necessary procedures on the
amendment and review the steps taken by management to
ensure that anyone in receipt of the previously issued
financial statements is informed. The auditor shall also
issue a new or amended auditor's report,which will
include an explanatory paragraph (known as an
emphasis of matter paragraph or other matter
paragraph) that refers to a note in the financial
statements that discusses the reason for the amendment.
Audit procedures will be extended up to the date of the new
report.
If management does not take the necessary steps, the
auditor shall notify management and those charged with
governance that the auditor will seek to prevent future
reliance on the report. If management still does not act,
the auditor shall take appropriate action to seek to

4.2 Going concern

If the entity has inappropriately used the going
concern assumption or a material uncertainty exists,
this
may impact on the auditor's report.
Under the going concern assumption, an entity is viewed
as continuing in business for the foreseeable
future. When the use of the going concern assumption is
appropriate, assets and liabilities are recorded
on the basis that the entity will be able to realise its
assets and discharge its liabilities in the normal course
of business.

4.2 Going concern

If the going concern basis is not appropriate the financial
statements are prepared using on a break-up basis.
Using the break-up basis is likely to result in noncurrent assets and liabilities being reclassified as
current. Asset values will need to be stated at their
realisable value as they are no longer to be used in
an on going business. More liabilities may also arise as a
result of closing down operations, and extra provisions
may be necessary (for example over inventories to be
sold at a reduced price). Management will also need to
disclose the fact the going concern assumption has not
been used and explain why.

4.2 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 management's 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 entity's ability to continue
as a going concern
To determine the implications for the auditor's report

4.2 Going concern

Audit procedures applied in performing going concern reviews

Analyse and discuss cash flow, profit and other relevant forecasts with
management
Analyse and discuss the entity's latest available interim financial
statements (or management accounts)
Review the terms of debentures and loan agreements and determine
whether they have been breached
Read minutes of the meetings of shareholders, the board of directors
and important committees for reference to financing difficulties
Inquire of the entity's lawyer regarding litigation and claims
Confirm the existence, legality and enforceability of arrangements to
provide or maintain financial support with related and third parties
Assess the financial ability of such parties to provide additional funds
Consider the entity's position concerning unfulfilled customer orders
Review events after the period-end for items affecting the entity's
ability to continue as a going concern
Confirm the existence, terms and adequacy of borrowing facilities
Obtaining and reviewing reports of regulatory actions
Determining the adequacy of support for any planned disposalsof
assets

Review F8

Day 1
1.
2.
3.
4.
5.
6.

Audit purpose
Audit opinion
Responsibility
Audit risk
Assertions
Materiality

Day 2
1.
2.
3.
4.

Ethics and business conduct

Independence and threats
Fraud and errors
Audit documentation

Day 3
1.
2.
3.
4.
5.

Evidence-gathering technique
Cash and bank
Non-current asset
Inventory (self-study)
Receivables (self-study)