Rp
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QUESTION 5
a) Going concern provides a guidance on the auditor’s responsibilities in the audit of financial statement regarding the appropriateness of the going concern assumption for the preparation of the financial statement. Even though the purpose of an audit is not to evaluate the financial health of the business, the auditor has a responsibility to evaluate whether the company is likely to continue as a going concern, for example, the existence of one or more of the following factors causes uncertainty about the ability of a company to continue as a going concern : i.
Significant recurring operating losses or working capital deficiencies.
ii.
Inability of the company to pay its obligations as they come due
iii.
Loss of major customers, the occurrence of uninsured catastrophes such as an earthquake or flood, or unusual labour difficulties
iv.
Legal proceedings, legislation, or similar matters that have occurred that might jeopardize the entity’s ability to operate.
b)
i)
Accept client and perform initial audit planning
ii)
understand the client’s business and industry
iii)
assess client business risk
iv)
perform preliminary analytical procedures
v)
set materiality and assess acceptable audit risk and inherent risk
vi)
understand internal control and assess control risk
vii)
gather information to assess fraud risks
viii)
develop overall audit plan and audit program
x
c)
i)
apply the transaction-related audit objectives to the class of transactions being tested.
ii)
identify key controls that should reduce controls risk for each transaction-related audit objective.
iii)
for all internal controls used to reduce the initial assessment of control risk below maximum, develop appropriate test of controls.
iv)
for the potential types of misstatement related to each transactionrelated audit objective, design appropriate substantive test of transaction, considering deficiencies in internal control and expected result of the test of controls.
d) Section 169 of the Companies Act 1965 requires the directors of every company to lay before the company at its annual general meeting audited financial statements that give a true and fair view of the state of affairs of the company and its results for the period under audit. An amendment to the act in 1998 made it the responsibility of the director of a company to ensure that the accounts of the company presented before the company at its annual general meeting are made out in accordance with the applicable approved accounting standard.
xi
a) Going concern provides a guidance on the auditor’s responsibilities in the audit of financial statement regarding the appropriateness of the going concern assumption for the preparation of the financial statement. Even though the purpose of an audit is not to evaluate the financial health of the business, the auditor has a responsibility to evaluate whether the company is likely to continue as a going concern, for example, the existence of one or more of the following factors causes uncertainty about the ability of a company to continue as a going concern : i.
Significant recurring operating losses or working capital deficiencies.
ii.
Inability of the company to pay its obligations as they come due
iii.
Loss of major customers, the occurrence of uninsured catastrophes such as an earthquake or flood, or unusual labour difficulties
iv.
Legal proceedings, legislation, or similar matters that have occurred that might jeopardize the entity’s ability to operate.
b)
i)
Accept client and perform initial audit planning
ii)
understand the client’s business and industry
iii)
assess client business risk
iv)
perform preliminary analytical procedures
v)
set materiality and assess acceptable audit risk and inherent risk
vi)
understand internal control and assess control risk
vii)
gather information to assess fraud risks
viii)
develop overall audit plan and audit program
x
c)
i)
apply the transaction-related audit objectives to the class of transactions being tested.
ii)
identify key controls that should reduce controls risk for each transaction-related audit objective.
iii)
for all internal controls used to reduce the initial assessment of control risk below maximum, develop appropriate test of controls.
iv)
for the potential types of misstatement related to each transactionrelated audit objective, design appropriate substantive test of transaction, considering deficiencies in internal control and expected result of the test of controls.
d) Section 169 of the Companies Act 1965 requires the directors of every company to lay before the company at its annual general meeting audited financial statements that give a true and fair view of the state of affairs of the company and its results for the period under audit. An amendment to the act in 1998 made it the responsibility of the director of a company to ensure that the accounts of the company presented before the company at its annual general meeting are made out in accordance with the applicable approved accounting standard.
xi
