14.2, 14.3 gg concern+contigent lia

Question 1

Going concern

Answer 1

1.Assumption that the entity will continue its operation in the foreseeable future and will realize it assets and discharge its liabilities in the normal course of business

2.IAS 1 requires mgt to make assmnt about the entity ability to continue as a going concern

3. 3 actors relevant for mgt going concern assumption:

-must assess all relevant information for a period of 12 months from date of FS

-jugdement abt future is made based on information currently available. thus, subsequent events might contradict judgement that was reasonable at the time it was made

-complexity, nature , size and condition of the entity which is affected by external factors will also impact judgement regarding going concern

Question 2

Going concern and CAS 570

Answer 2

1.CAS 570 requires adtr to assess appropriateness of mgt going concern assumption and should determine if it matches the knowledge theyve obtained from their understanding

2. adtr needs to consider if thr”out their adit prdrs they ve found significant evidence against the bsn going concern assumption
3. if there is significant doubt abt going concern, str should ask mgt to develop a turnaround plan which includes actions like selling assets or taking out loan.adtr should also assess its feasibility and its ability to improve the situation and include it as a reference to mgt representation letter

Question 3

Going concern and existence of doubt

Answer 3

1. if there is significant doubt abt going concern, str should ask mgt to develop a turnaround plan which includes actions like selling assets or taking out loan.

2.adtr should also assess its feasibility and its ability to improve the situation and include it as a reference to mgt representation letter

Question 4

going concern and adt opinion

Answer 4

1. material uncertainties is the inability to meet the obligations due with the disposal of assets within the course of normal bsn. important to consider when reporting
2. if material uncertainty exists and adequately disclosed, adtr will issue unqualified option with the issue addressed under the heading of “material uncertainty related to going concern”. this is to draw attention to the going concern note in the FS
3. GOING CONCERN NOTE SHOULD INCLUDE THE DESCRIPTION of the matters that raises the issue of going concern and mgt plan to address it
4. if not adequately disclosed, adtr will issue a modified or adverse report
5. if going concern does not apply to FS, FS prepared on the liquidation basis and this needs to be disclosed together with the reason why going concern assumption is not valid of the entity

Question 5

contingent liabilities

Answer 5

1.when entity has possible obligations/losses in the future depending on the outcome

2. mgt responsibility to treat the contingent liabilities according to the financial framework adopted. they can either record or disclose that in the FS depending on how “likely” and “measurable” they are.
3. adtr responsibility to search for any litigation and claims involving the entity which the adtr is not aware, but could give rise to MM

Question 6

contingent liabilities prdrs

Answer 6

4. prdrs done by Adtr
   -review minutes of those in charge and correspondence with external legal counsel
   -review legal expense acc for any fluctuation
   -inquire mgt and personnel and in house legal counsel for any unreported contingent liabilities
   -have to include in mgt representation letter that all contingent liabilities have been disclosed
   -review correspondence with taxation authorities

Question 7

contingent liabilities risk identified

Answer 7

5. if risk of MM in relation with litigation and claims identified, adtr seeks permission to communicate with the external legal counsel. if permission denied, adtr try alternative padre. if alternative prdr does not gather appropriate sufficient evidence, adtr will modify opinion in adt report
6. prdrs for contigent liability carried out at end of adt to ensure that sufficient appropriate evidence has been obtained together when performing prdrs for subsequent events.
7. this prdr also give chance to gather evidence for other long term commitment not appropriately disclosed.