ACCA F8

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Revision question on subsequent events and going concern (NBAA C2, May 2017)

You are an audit senior for an audit firm and are currently working on the audit of Techno lab, a company which produces sophisticated electronic laboratory equipment. The company imports a high proportion of the components it uses from China. The equipment is used by some laboratories dealing with hazardous chemicals.
As the audit draws to a close, the partner
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6 indicators of presence significant deficiency in internal control.

ISA 265 ” communicating¬† deficiencies in internal control to those charged with governance and management” states that deficiency in the internal control exists when:

  • A control is designed, implemented or operated in such a way that it is unable to prevent, or detect and correct, misstatements in the financial statements on a timely basis; or
  • A control necessary to prevent,
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internal audit – meaning

internal audit is defined as an independent appraisal activity within an organisation for the review of accounting, financial and other controls as a basis of service to management. It is the managerial control which functions by measuring the effectiveness of other controls. Internal auditor is an employee of the organisation and is responsible to its management. Internal auditor requires a … Read the rest

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substantive procedures for evaluating going concern status of the entity

Going concern this assume that the entity will continue to operate for the foreseeable future with neither the intention nor necessity of liquidation, ceasing trading or seeking protection from creditors pursuant to laws and regulation.  

The following are tests and procedures the auditor needs to perform to form an opinion on management conclusion that the company is going concern:

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Auditor’s responsibility on going concern status of the entity.

Going concern  means that the enterprise will continue in operational existence for the foreseeable future without the intention or necessity of liquidation or otherwise ceasing trade. It is one of fundamental accounting concepts used by auditors  and is stated in IAS 1 presentation of financial statements.

The auditors responsibilities in respect of going concern is explained in ISA 570 going Read the rest