ACCA F8 - Audit and Assurance Revision Kit 2016

• Perform audit procedures in respect of subsequent events to identify any event which might affect
the going concern assessment.
• Evaluating management's plans for the future of the business, by finding out from the financial
director whether the company has gained any new customers to replace the customers lost.
• Discuss with management their plans for obtaining alternative funding for new product development.
• Review the company’s post year end sales and order book to determine whether the revenue forecast
is reasonable, in the light of increased competition.
• Review board meeting minutes for evidence of progress on recruiting specialist developers to replace
the ones who have left to join Drum.
• Review post year end board meeting minutes to identify any reference to further financial difficulties.
• Review loan and overdraft agreements to determine whether any covenants have been breached.
• Review correspondence with the bank to assess the likelihood of the overdraft facility being renewed.
• Review correspondence with the shareholders to assess the probability that any of the shareholders
choose to increase their investment
• Analyse and discuss the entity's latest available interim financial statements (or management
accounts) to determine whether it is consistent with the cash flow forecast.
• Request Clarinet’s lawyers to provide an assessment of the company losing the legal action brought
by the customer, along with an estimate of the likely damages payable. Confirm, by discussions with
the lawyer, whether the company is implicated in any other litigation in progress.
• Requesting written representations from management and those charged with governance about
plans for future action and the feasibility of these plans
(Tutorial note: Only six procedures are required.)
(d)
Auditor’s report
The impact on the auditor’s report will be dependent on the adequacy of the disclosures made by
management. If the disclosures are adequate, then the auditor’s opinion will be unmodified, but the
disclosures in the financial statements will be referred to in a material uncertainty related to going concern
section.
The section will explain that there is a material uncertainty, describe the nature of the uncertainty, and cross
reference to the disclosure note made by management. It would be included after the opinion and basis for
opinion paragraphs.
If the disclosures made by management are not adequate, the audit opinion will need to be modified as there
is a material misstatement. Depending on the materiality of the issue, this will be either qualified or an
adverse opinion.
The opinion paragraph will be amended to state ‘except for’ or the financial statements are not fairly
presented. A paragraph describing the matter giving rise to the modification will be included after the
opinion paragraph and this will clearly identify the inadequacy of disclosure over the going concern
uncertainty.
Answers 179