ACCA F8 - Audit and Assurance Revision Kit 2016

– Obtain a written representation from management confirming the management’s opinion that the
business is a going concern
– Evaluate the evidence obtained and come to a conclusion as to whether the company is a going
concern and that the going concern basis should be used for the preparation of the financial
statements.
(d)
Reporting
(i)
Kiwi & Co’s responsibility to report on going concern to the directors
Kiwi & Co must report to the directors any information which casts doubt on the ability of the
company to continue as a going concern. In accordance with ISA 570 Going concern Kiwi & Co will
report the following:
– Whether the events or conditions constitute a material uncertainty
– Whether the use of the going concern assumption is appropriate in the preparation of the
financial statements
– The adequacy of related disclosures in the financial statements.
(ii)
Impact on the auditor’s report
If the directors refuse to amend the financial statements and we believe that the company is not a
going concern, the audit opinion will be modified. An adverse opinion will be issued as the matter is
both material and pervasive.
The adverse opinion paragraph will state that the financial statements do not present fairly or do not
give a true and fair view.
The basis for adverse opinion paragraph will provide an explanation of the inappropriate use of the
going concern assumption by the directors.
117 Clarinet
Text references. Chapters 18.
Top tips. Part (b) asks you to explain the indicators of going concern in the scenario provided. Note the verb used
here: ‘explain’ requires you not only to identify the indicators, but also to explain why each fact would affect
Clarinet’s going concern status. Saying that something ‘will impact going concern’ is not specific enough – you will
need to describe how it is likely to do so. If you do not provide adequate explanations, you will only score half of the
marks available.
In part (c), again, be specific. It is important to link your answer to the scenario.
Examination Team's comments. Candidates’ performance was mixed in part (c).
Those candidates who failed to score well produced vague procedures such as “obtain the cash flow forecast,”
“review board minutes” and “discuss with management”. These examples lack the detail of what the actual
procedure involves and therefore limit the amount of credit that can be awarded. In addition some procedures were
unrealistic such as asking the bank to confirm whether it will renew the overdraft facility when the scenario made it
clear that the bank would only make such a decision after seeing the audit report. Candidates must use the scenario
and be practical when generating audit procedures.
176 Answers