Management should consider a range of issues and information concerning the company’s future performance when assessing their company’s ability to continue as a going concern, for example the identification of future risks and uncertainties that could affect that ability. Briefly explain what is meant by the ‘going concern assumption’. 

4) b) Subsequent Events can be classified as adjusting events and non-adjusting events. For the list of events below indicate whether the event is adjusting or non-adjusting?

i. Insolvency of a receivable after year end

ii. Destruction of significant asset after year end

iii. Sale of inventories after year end… evidence of Net Realizable Value

iv. Issue of shares/debt after year end

v. Discovery of errors/fraud revealing Financial Statement incorrect after year end

vi. Take-over of another business after year end vii. Purchases/sales of significant non-current assets after year end

viii. Agreement of tax liability after year end 

4) c) Consider each situation independently and discuss the issues involved and describe the audit opinion that should be given if the matter remained unresolved.

i. The Chairman indicated in the Annual Report that revenue increased by 100% however the audited figures in the financial statements show an increase of only 10%. Several attempts were made to have the Chairman correct the Annual Report, but all were unsuccessful. 

ii. The Company ceased trading on March 20, 2014. Its year end is December 31, 2013. As such the Company was not a going concern as at the year end. The financial statements were still prepared under the going concern basis. 

iii. The Auditor did not observe the counting of the physical inventories at year end, since that date was prior to the time they were initially engaged as auditors for the Company. Owing to the nature of the Company’s records, they were unable to satisfy themselves as to inventory quantities by other audit procedures.

Answer rating: 100% (QA)

4a i Going Concern Assumptions means that the company will do business in the future Commonly this concept is for the jointstock companies in which there are many shareholders and stakeholders and in ... View the full answer