Chap10 GConcern

Question 1

Audit Procedures where there is doubt over GConcern

Review correspondence - 3

Answer 1

Suppliers - for evidence issues re payments (that’d impact ability obtain supplies/credit)

Bank- indication loan/overdraft may be recalled

Customers - for evidence dispute impact recoverability debts/affect future sales

Question 2

A Procedures perform where doubt GConcern

• management?

Answer 2

1. Obtain. Wrep re plans future & how plan to address GConcern issues
2. Analyse & discuss cash flow
   Profit forecasts

Question 3

6. Procedures to perform where doubt GConcern

Answer 3

TERMS DEBENTURES- review determin if breached

SUBSEQUENT EVENTS- identify those mitigate/ affect w tutors ability continue as GConcern

Enq entity lawyer existence LITIGaTION & claims (reasonableness of m assesm of their outcome & estimation of their financial implications)

MINS oF MEETINGS for ref financial difficulty

INTERIM FS - analyse &discuss latest

Conf existence ARRANGEMENTS to provide financial support with Related & 3rd parties - assess financial ability to provide additional funds

Question 4

10 indicators of GConcern

Answer 4

1 LOAN repayments falling due in near future

2 Approaching BORROWING LIMITS

3 impact of MAJOR LITIGATION

Shortage supplies

Tech obsolescence of product range

Loss of key staff

Loss of key suppliers & customers

Rapidly increasing costs

Business failures among cuts &suppliers

Deteriorating financial ratios

Signif changes L& REg affecting entity

Question 5

What is manag responsib. Re GConcern

Answer 5

Prep FS on approp basis (gconcern/ break up)

Disclose uncertainties in Fs

Assessment of entities ability to continue as a GConcern

Question 6

ISA 570

What is auditors responsibility re GConcern

Answer 6

Obt s&approp evidence re appropriateness of m use of Gconcern basis in prep fs

Conclude whether MATERIAL UNCERTAINTY exists

Question 7

What is break up basis

Answer 7

All assets & liabilities are Reclassified as “CURRENT”

Provisions for liquidation e.g. redundancy & legal costs may be required

Question 8

Disclosure Gconcern required To be made by D in what circumstances?

Answer 8

1. Fs prep on basis other than gc - basis should be disclosed

2 there is MATERIAL UNCERTAINTY- disclosure should explain event casts doubt & m plans to deal with company may be unable to realise assets & discharge liab in normal course of business

3 unable to assess GConcern in usual way- this fact should be disclosed ( less than one year beyond date on which they sign fs)

Question 9

2 audit procedures to assess m evaluation of Gconcern

Answer 9

1 assess same period management have used in their assessment if less than 12 months ask them to extend

2 consider whether managements assessment includes ALL RELEVANT INFO