SU 13 - Evidence Key Considerations

Question 1

What are examples of management’s plans to mitigate the adverse affects of the entity’s ability to continue as a going concern?

Answer 1

Dispose of assets
BORROW money or restructure debt
REDUCE or delay expenditures, LEASING not Purchasing
INCREASE equity

Question 2

The refusal of a client’s legal counsel to provide a representation on the legality of an act committed by the client is

Answer 2

Ordinarily a SCOPE limitation

Question 3

Explain the process of a letter of inquiry to the client’s external legal counsel

Answer 3

Letter of inquiry is the auditor’s way of corroborating information furnished by management regarding litigation, claims, and assessments

Auditor requests Management to send the letter to counsel

Without client consent, the legal counsel may not respond

Question 4

Procedures to identify going concern issues:

Answer 4

Analytical procedures
Review of subsequent events
Review of compliance with debt and loan agreements
Reading minutes of meetings
Inquiry of legal counsel
Confirmation with related and third parties of arrangements for financial support

Question 5

Explain the management representation letter:

Answer 5

The letter is addressed to the AUDITOR and drafted by the AUDITOR

Question 6

Which subsequent even would require disclosure but no adjustment?

Answer 6

New convertible bonds are issued to expand the company’s product line