ACCA F8 - Audit and Assurance Revision Kit 2016

13 The correct answers are:
Obtain the cash flow forecasts and assess whether the cash inflows and outflows appear realistic and
consistent with knowledge built up during the audit.
Review board minutes for meetings held after the year end for evidence which indicate further financial
difficulties or evidence of alternative sources of finance
The scenario clearly states that the bank will not make a decision on the extension of the overdraft facility
until after the auditor’s report is signed, and banks will not agree to disclose such information to the auditor.
While written representations are a valid form of audit evidence, they do not provide sufficient appropriate
audit evidence on their own about any of the matters with which they deal.
14 The correct answer is:
Audit opinion
Unmodified opinion
Disclosure in the auditor’s report
Describe the nature of the going concern uncertainty
in the Material Uncertainty Related to Going Concern
section
The existence of a material uncertainty in relation to going concern would not simply be a key audit matter,
but would require a ‘Material uncertainty related to going concern’ section. A qualified opinion would be
issued where the going concern assumption is appropriate, but a material uncertainty exists which is not
adequately disclosed. An adverse opinion would be issued where the going concern assumption is
inappropriate.
15 The correct answer is:
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
If Medimade is no longer able to continue its operations, this constitutes an adjusting event and the financial
statements must be revised accordingly. IAS 10 states that an entity must not prepare its financial
statements on a going concern basis if management determine after the year end that it has no other
alternative but to liquidate the company. Now that the bank has withdrawn its overdraft facility, closure has
become a very real possibility. In this case, disclosure in the financial statements is no longer appropriate –
the financial statements must be prepared on a break-up basis.
Before the financial statements are issued, the auditors have a passive duty to consider the impact of
matters which, had they been known at the date of the auditor’s report, would have caused the auditor to
amend the auditor’s report.
228 Mock exam 2: answers