EXAM TIPS : AUDIT EVIDENCE & GOING CONCERN

- Relevant to Paper 8 (CAT) and F8 (ACCA)




PIC 01: AUDIT EVIDENCE EXPERIMENTED


AUDIT EVIDENCE & GOING CONCERN
The primary objective of an audit of financial statements is to enable the auditor to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework. The audit evidence he has gathered, which enables the auditor to express his opinion.
Auditors obtain sufficient, appropriate audit evidence. Evidence can be in the form of tests of controls or substantive procedures.

ISA 500 AUDIT EVIDENCE
The reliability of audit evidence is influenced by its source and by its nature.
ISA 500 Audit evidence requires auditors to 'obtain sufficient, appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion'.
· Sufficiency is the measure of the quantity of audit evidence.
· Appropriateness is the measure of the quality or reliability of the audit evidence.
The quantity of audit evidence required is affected by the level of risk in the area being audited. It is also affected by the quality of evidence obtained. If the evidence is high quality, the auditor may need less than if it were poor quality. However, obtaining a high quantity of poor quality evidence will not cancel out its poor quality.

Crucial to audit assertion work is that the company does not have evidence of financial distress that risk it as a going concern position.



PIC 02 & 03: Businessman is out of business. Are you aware?


ISA 570 : GOING CONCERN - AUDIT WORK
When planning and performing audit procedures and in evaluating the results thereof, auditors should consider the appropriateness of management’s use of the going concern assumption in the preparation of the financial statements, and consider any relevant disclosures in the financial statements.
– Review management’s plans for future actions based on its going concern assessment.
– Gather additional sufficient and appropriate audit evidence to confirm or dispel whether or not a material uncertainty exists regarding the going concern concept.
– Seek written representations from management regarding its plans for future action.
– Obtain information from company bankers regarding continuance of loan facilities.
– Review receivables ageing analysis to determine whether there is an increase in days which may also indicate cash flow problems.