ACCA F8 - Audit and Assurance Revision Kit 2016

13 It is May 20X7. The directors have informed you that the bank overdraft facility is due for renewal next
month, after the auditor’s report is signed. They are confident that it will be renewed.
Which TWO of the following audit procedures would be most effective in assessing whether or not
Medimade is a going concern?
Obtain the cash flow forecasts and assess whether the cash inflows and outflows appear realistic and
consistent with knowledge built up during the audit.
Obtain confirmation from the bank that the overdraft facility will be renewed
Obtain written representation from management that they consider the going concern assumption to
be appropriate
Review board minutes for meetings held after the year end for evidence which indicate further
financial difficulties or evidence of alternative sources of finance
14 The directors have now agreed to include going concern disclosures, while continuing to use the going
concern assumption.
You agree with Medimade’s management that the going concern assumption is appropriate under the
circumstances. You have reviewed the draft disclosures and believe they are correct and adequate.
Which of the following correctly summarises the effect this will have on the auditor’s report?
Audit opinion
Unmodified opinion
Unmodified opinion
Qualified opinion
Adverse opinion
Disclosure in the auditor’s report
Describe the nature of the going concern uncertainty
in the Key Audit Matters section
Describe the nature of the going concern uncertainty
in the Material Uncertainty Related to Going Concern
section
Describe the nature of the going concern uncertainty
in the Basis for Qualified Opinion section
Describe the nature of the going concern uncertainty
in the Basis for Adverse Opinion section
15 The audit is completed. The auditor’s report and the financial statements have been signed but not yet
issued.
The finance director of Medimade has just informed the audit team that he has been informed by the bank
that the overdraft facility will not be renewed. Medimade currently does not have any other source of finance.
What actions, if any, should you now take in order to meet the auditor’s responsibilities under ISA 560
Subsequent events?
No actions required as the auditor’s report and financial statements have already been signed
Discuss with management about their plans for the company and determine whether the 20X7
financial statements should now be prepared on a break-up basis. If yes, request management to
adjust the financial statements, audit the adjustments and provide a new auditor’s report
Discuss with management about their plans for the company and determine whether disclosures
should be revised in the 20X7 financial statements. If yes, request management to revise the
disclosures and redraft the auditor’s report to refer to the revised disclosures
Request that management adjust for this event in the 20X8 financial statements, as it occurred in the
year ending 31 March 20X8
Mock exam 2: questions 219