SUGGESTED SOLUTIONS/ ANSWERS – SUMMER 2018 EXAMINATIONS 1 of 9

AUDIT & ASSURANCE [P2] – PROFESSIONAL LEVEL

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Question No. 1
(a) (i) In conducting an audit of financial statements, the overall objectives of the auditor are: 02
 To obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, thereby enabling the
auditor to express an opinion on whether the financial statements are prepared, in all
material respects, in accordance with an applicable financial reporting framework; and
 To report on the financial statements, and communicate as required by the ISAs, in
accordance with the auditor's findings

(ii) The fundamental principles relating to ethical requirements relating to an audit of financial 04
statements with which the auditor is required to comply by the IESBA Code are:
 Integrity;
 Objectivity;
 Professional competence and due care;
 Confidentiality; and
 Professional behaviour.

(b) (i) As per sub section (3) of section 247 of the Companies Act, 2017, none of the following 05
persons shall be appointed as auditor of a company, namely:
 a person who is, or at any time during the preceding three years was, a director, other
officer or employee of the company;
 a person who is a partner of , or in the employment of, a director, officer or employee of
the company;
 the spouse of a director of the company;
 a person who is indebted to the company other than in the ordinary course of business of
such entities;
 a person who has given a guarantee or provided any security in connection with the
indebtedness of any third person to the company other than in the ordinary course of
business of such entities;
 a person or a firm who, whether directly or indirectly, has business relationship with the
company other than in the ordinary course of business of such entities;
 a person who has been convicted by a court of an offence involving fraud and a period of
ten years has not elapsed from the date of such conviction;
 a body corporate;
 a person who is not eligible to act as auditor under the code of ethics as adopted by the
Institute of Chartered Accountants of Pakistan and the Institute of Cost and Management
Accountants of Pakistan; and
 a person or his spouse or minor children, or in case of a firm, all partners of such firm who
hold any shares of an audit client or any of its associated companies:
Provided that if such a person holds shares prior to his appointment as auditor, whether as an
individual or a partner in a firm the fact shall be disclosed on his appointment as auditor and
such person shall disinvest such shares within ninety days of such appointment.

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – SUMMER 2018 EXAMINATIONS 2 of 9
AUDIT & ASSURANCE [P2] – PROFESSIONAL LEVEL
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(ii) As per sub section (1) of section 248 of the Companies Act, 2017, an auditor of a company 04
has a right:
 of access at all times to the company’s books, accounts and vouchers (in whatever form
they are held);
 of access to such copies of, an extracts from, the books and accounts of the branch as
have been transmitted to the principal office of the company;
 to require any of the following persons to provide him with such information or
explanations as he thinks necessary for the performance of his duties as auditor:
- any director, officer or employee of the company;
- any person holding or accountable for any of the company’s books, accounts or
vouchers;
- any subsidiary undertaking of the company; and
- any officer, employee or auditor of any such subsidiary undertaking of the company or
any person holding or accountable for any books, accounts or vouchers of any such
subsidiary undertaking of the company.

Question No. 2
(a) (i) In accordance with International Standard on Quality Control (ISQC 1), the system of quality 04
control at a firm level includes policies and procedures that addresses each of the following
elements:
 Leadership responsibilities for quality within the firm;
 Compliance with relevant ethical requirements;
 Acceptance and continuance of client relationships and specific engagements is based on
consideration of integrity of the principal owners, key management and those charged
with governance of the entity, engagement team is competent to perform the audit
engagement and has the necessary capabilities including time and resources, compliance
with relevant ethical requirements and significant matters that arisen during the current or
previous audit engagement;
 Human resources;
 Engagement performance; and
 Monitoring.

(ii) In accordance with International Standard on Quality Control (ISQC 1), the system of quality 04
control on an individual audit includes policies and procedures that address each of the
following elements:
 Direction, supervision and performance of the engagement;
 Review responsibilities of more experienced team members for the worked performed by
less experienced team members and the engagement partner review of work performed;
 Considerations of member of the engagement team with expertise in a specialized area of
accounting or auditing;
 Consultation;
 Engagement quality control review;
 Monitoring; and
 Documentation

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – SUMMER 2018 EXAMINATIONS 3 of 9
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(b) (i) An appropriate time limit within which to complete the assembly of the final audit file is 02
ordinarily not more than 60 days after the date of the auditor's report.

(ii) The completion of the assembly of the final audit file after the date of the auditor's report is an 02
administrative process that does not involve the performance of new audit procedures or the
drawing of new conclusions. Changes may, however, be made to the audit documentation
during the final assembly process if they are administrative in nature.

(iii) Examples of procedures that can be performed during assembly of the final audit file: 03
- Deleting or discarding superseded documentation.
- Sorting, collating and cross-referencing working papers.
- Signing off on completion checklists relating to the file assembly process.
- Documenting audit evidence that the auditor has obtained, discussed and agreed with
the relevant members of the engagement team before the date of the auditor's report

Question No. 3
(a) (i) (1) While testing entire population if a misstatement found, the misstatement would not be 01
extrapolated.
(2) While testing an account balance using sample if a misstatement found, the 01
misstatement would be extrapolated to the entire population.

(ii) In response to address the assessed risks of material misstatement due to fraud at the 03
financial statements level, the auditor shall:
 Assign and supervise personnel taking account of the knowledge, skill and ability of the
individuals to be given significant engagement responsibilities and the auditor's
assessment of the risks of material misstatement due to fraud for the engagement;
 Evaluate whether the selection and application of accounting policies by the entity,
particularly those related to subjective measurements and complex transactions, may be
indicative of fraudulent financial reporting resulting from management's effort to manage
earnings; and
 Incorporate an element of unpredictability in the selection of the nature, timing and extent
of audit procedures

(b) (i) The risk assessment procedures shall include the following: 03
 Inquiries of management, of appropriate individuals within financial reporting, legal and
compliance department, internal audit function and others within the entity who in the
auditor's judgment may have information that is likely to assist in identifying risks of
material misstatement due to fraud or error.
 Analytical procedures.
 Observation and inspection of entity’s operations, documents, records, internal control
manuals, reports prepared by management and those charged with governance and the
entity’s premises and plan facilities.

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – SUMMER 2018 EXAMINATIONS 4 of 9
AUDIT & ASSURANCE [P2] – PROFESSIONAL LEVEL
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(ii) (1) Examples of benchmarks that may be appropriate, depending on the circumstances of 01
the entity. Profit before tax from continuing operations is often used for profit-oriented
entities.
(2) When profit before tax from continuing operations is volatile, other benchmarks may be 01
more appropriate, such as gross profit or total revenues.

Question No. 4
(a) (i) Following are the key controls relating to the repair & maintenance expenses: 04
 Board of directors has approved the financial limit and these are documented in the
schedule of financial powers
 Purchase manager approves the expense as per the financial limit
 Approval limit or purchase manager. If the amount of repair & maintenance expense
exceed his limit, approval from next level is required.
 Head of Operations approval for payment of invoice.

(ii) Following are the weaknesses in the design & implementation of the control: 02
 Entry is both prepared and approved Manager Finance and no segregation of duties.
 Single person is signing the cheque, four eye principle ignored.
 Bank reconciliation statement is not reviewed and approved by next level of authority.

(b) As per ISA 260, following matters need to be communicated to those charged with governance by 04
auditor in relation to audit of financial statements:
1- The Auditor's Responsibilities in Relation to the Financial Statement Audit:
The auditor shall communicate with those charged with governance the responsibilities of the
auditor in relation to the financial statement audit, including that:
 The auditor is responsible for forming and expressing an opinion on the financial
statements that have been prepared by management with the oversight of those charged
with governance; and
 The audit of the financial statements does not relieve management or those charged with
governance of their responsibilities.
2- Planned Scope and Timing of the Audit:
The auditor shall communicate with those charged with governance an overview of the
planned scope and timing of the audit, which includes communicating about the significant
risks identified by the auditor.
3- Significant Findings from the Audit:
The auditor shall communicate with those charged with governance:
 The auditor's views about significant qualitative aspects of the entity's accounting
practices, including accounting policies, accounting estimates and financial statement
disclosures. When applicable, the auditor shall explain to those charged with governance
why the auditor considers a significant accounting practice that is acceptable under the
applicable financial reporting framework, not to be most appropriate to the particular
circumstances of the entity;

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – SUMMER 2018 EXAMINATIONS 5 of 9
AUDIT & ASSURANCE [P2] – PROFESSIONAL LEVEL
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 Significant difficulties, if any, encountered during the audit;
Unless all of those charged with governance are involved in managing the entity:
– Significant matters arising during the audit that were discussed, or subject to
correspondence, with management; and
– Written representations the auditor is requesting;
Circumstances that affect the form and content of the auditor’s report, if any; and
Any other significant matters arising during the audit that, in the auditor's professional
judgment, are relevant to the oversight of the financial reporting process.
4- Auditor Independence:
In the case of listed entities, the auditor shall communicate with those charged with
governance:
 A statement that the engagement team and others in the firm as appropriate, the firm and,
when applicable, network firms have complied with relevant ethical requirements regarding
independence; and
- All relationships and other matters between the firm, network firms, and the entity that,
in the auditor's professional judgment, may reasonably be thought to bear on
independence. This shall include total fees charged during the period covered by the
financial statements for audit and non-audit services provided by the firm and network
firms to the entity and components controlled by the entity. These fees shall be
allocated to categories that are appropriate to assist those charged with governance in
assessing the effect of services on the independence of the auditor; and
- The related safeguards that have been applied to eliminate identified threats to
independence or reduce them to an acceptable level.

Question No. 5
(a) (i) (1) Evidence created/developed by the auditors: 03
This is in general the most reliable type of audit evidence because there is little risk that
it can be manipulated by management.
- Analytical procedures, such as calculation of ratios, trends in order to examine
unusual variations, recalculation of expenses and income such as interest income,
interest expense and salary reconciliation
- Physical inspection or observations, such as attendance at inventory count or
physical verification of fixed assets
- Performance of calculation making up figures in the accounts such as the
computation of total inventory value, fair value calculation of investments.

(2) Evidence provided by the management of the client: 03

The auditor cannot place the same degree of reliance on evidence provided by client
management as on that provided/obtained from outside the entity. However, it will often
be necessary to place some reliance on such evidence. The auditor will need to obtain
audit evidence that the information supplied is complete and accurate, and apply
judgement in doing so, taking into account previous experience of the client’s reliability
and the extent to which the client’s representations appear compatible with other audit
findings, as well as the materiality of the item under discussion.

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – SUMMER 2018 EXAMINATIONS 6 of 9
AUDIT & ASSURANCE [P2] – PROFESSIONAL LEVEL
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Examples:
- The company’s accounting records and supporting schedules. Although these are
prepared by management, the auditors have a statutory right to examine such records in
full. This right enhances the quality of the information.
- The client’s explanation of apparently unusual fluctuations in results. Such evidence
requires interpretation by the auditors and, being oral evidence, only limited reliance can
be placed on it.
- Information provided to the auditors about the internal control system. The auditors need
to confirm that this information is accurate and up-to-date, and that it does not simply
describe an idealised system which is not adhered to in practice.

(ii) The nature, timing and extent of audit procedures may be affected by following matters/ 06
factors:
- The nature and complexity of the matter to which the management's expert relates.
- The risks of material misstatement in the matter.
- The availability of alternative sources of audit evidence.
- The nature, scope and objectives of the management's expert's work.
- Whether the management's expert is employed by the entity, or is a party engaged by it
to provide relevant services.
- The extent to which management can exercise control or influence over the work of the
management's expert.
- Whether the management's expert is subject to technical performance standards or
other professional or industry requirements.
- The nature and extent of any controls within the entity over the management's expert's
work.
- The auditor's knowledge and experience of the management's expert's field of expertise.
- The auditor's previous experience of the work of that expert.

(b) (i) Following are two general types of substantive procedures: 02

1. Test of details of transactions, account balances and disclosures
2. Analytical procedures.

(ii) (1) When designing and performing substantive analytical procedures, the following factors 04
will need to be considered:
 Determine the suitability of particular substantive analytical procedures for given
assertions, taking account of the assessed risks of material misstatement and tests
of details, if any, for these assertions
 Evaluate the reliability of data from which the auditor's expectation of recorded
amounts or ratios is developed, taking account of source, comparability, and nature
and relevance of information available, and controls over preparation;
 Develop an expectation of recorded amounts or ratios and evaluate whether the
expectation is sufficiently precise to identify a misstatement that, individually or when
aggregated with other misstatements, may cause the financial statements to be
materially misstated; and
 Determine the amount of any difference of recorded amounts from expected values
that is acceptable without further investigation.
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – SUMMER 2018 EXAMINATIONS 7 of 9
AUDIT & ASSURANCE [P2] – PROFESSIONAL LEVEL
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(2) To design the appropriate procedures, the auditor may use the last month salary of the 02
prior year and project for twelve months for current year. Compare the calculated
amount with actual salaries, wages and benefit expenses and reconcile the difference
by incorporating the impact of new joiners, outgoing employees, salary increment and
bonuses.

Question No. 6

(a) If the external auditor uses internal auditors to provide direct assistance on the audit, the external 04
auditor shall include in the audit documentation:
(i) The evaluation of the existence and significance of threats to the objectivity of the internal
auditors, and the level of competence of the internal auditors used to provide direct
assistance;
(ii) The basis for the decision regarding the nature and extent of the work performed by the
internal auditors;
(iii) Who reviewed the work performed and the date and extent of that review;
(iv) The written agreements obtained from an authorized representative of the entity and the
internal auditors; and
(v) The working papers prepared by the internal auditors who provided direct assistance on
the audit engagement.

(b) (i) Difference Between:

(1) For using the work of the internal audit function, the auditor determine whether that work 01
is adequate for purposes of the audit; and
(2) For using internal auditors to provide direct assistance, the auditor appropriately direct, 01
supervise and review their work.

(ii) Procedures: 04
While using the work of internal audit function, the external auditors should perform following
procedures to be able to rely on internal audit function:
 The work of the function had been properly planned, performed, supervised, reviewed
and documented;
 Sufficient appropriate evidence had been obtained to enable the function to draw
reasonable conclusions; and
 Conclusions reached are appropriate in the circumstances and the reports prepared by
the function are consistent with the results of the work performed.
While using internal auditors to provide direct assistance, the external auditors should
consider:
 The amount of judgment involved in:
- Planning and performing relevant audit procedures; and
- Evaluating the audit evidence gathered;
 The assessed risk of material misstatement; and
 The external auditor's evaluation of the existence and significance of threats to the
objectivity and level of competence of the internal auditors who will be providing such
assistance.

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – SUMMER 2018 EXAMINATIONS 8 of 9
AUDIT & ASSURANCE [P2] – PROFESSIONAL LEVEL
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(c) From the press release on 15 September 2017 it is evident that XYZ Limited was in financial 02
difficulties before the financial year end of ABC Sugar Mills Limited. Subsequent declaration of
bankruptcy on 15 October 2017 has further confirmed the events and conditions existed at the
balance sheet date. Accordingly, ABC Sugar Mills Limited requires to adjust the financial
statements for the year ended 30 September 2017.

Question No. 7
(a) Objective of an agreed-upon procedures engagement: 04
The objective of an agreed-upon procedures engagement is for the auditor to carry out
procedures of an audit nature to which the auditor and the entity and any appropriate third parties
have agreed and to report on factual findings.
Type of assurance:
As the auditor simply provides a report of the factual findings of agreed-upon procedures, no
assurance is expressed. Instead, users of the report assess for themselves the procedures and
findings reported by the auditor and draw their own conclusions from the auditor's work.

(b) The auditor ordinarily performs the following review procedures: 08

(i) Reading the minutes of the meetings of shareholders, those charged with governance, and
other appropriate committees to identify matters that may affect the interim financial
information, and inquiring about matters dealt with at meetings for which minutes are not
available that may affect the interim financial information.
(ii) Considering the effect, if any, of matters giving rise to a modification of the audit or review
report, accounting adjustments or unadjusted misstatements, at the time of the previous
audit or reviews.
(iii) Communicating, where appropriate, with other auditors who are performing a review of the
interim financial information of the reporting entity's significant components.
(iv) Inquiring of members of management responsible for financial and accounting matters, and
others as appropriate about the following:
(v) Whether the interim financial information has been prepared and presented in accordance
with the applicable financial reporting framework.
(vi) Whether there have been any changes in accounting principles or in the methods of
applying them.
(vii) Whether any new transactions have necessitated the application of a new accounting
principle.
(viii) Whether the interim financial information contains any known uncorrected misstatements.
(ix) Unusual or complex situations that may have affected the interim financial information, such
as a business combination or disposal of a segment of the business.
(x) Significant assumptions that are relevant to the fair value measurement or disclosures and
management's intention and ability to carry out specific courses of action on behalf of the entity.
(xi) Whether related party transactions have been appropriately accounted for and disclosed in
the interim financial information.
(xii) Significant changes in commitments and contractual obligations.
(xiii) Significant changes in contingent liabilities including litigation or claims.

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – SUMMER 2018 EXAMINATIONS 9 of 9
AUDIT & ASSURANCE [P2] – PROFESSIONAL LEVEL
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(xiv) Compliance with debt covenants.
(xv) Matters about which questions have arisen in the course of applying the review procedures.
(xvi) Significant transactions occurring in the last several days of the interim period or the first
several days of the next interim period.
(xvii) Knowledge of any fraud or suspected fraud affecting the entity involving:
- Management;
- Employees who have significant roles in internal control; or
- Others where the fraud could have a material effect on the interim financial information.
(xviii) Knowledge of any allegations of fraud, or suspected fraud, affecting the entity's interim
financial information communicated by employees, former employees, analysts, regulators,
or others.
(xix) Knowledge of any actual or possible noncompliance with laws and regulations that could
have a material effect on the interim financial information.
(xx) Applying analytical procedures to the interim financial information designed to identify
relationships and individual items that appear to be unusual and that may reflect a material
misstatement in the interim financial information. Analytical procedures may include ratio
analysis and statistical techniques such as trend analysis or regression analysis and may be
performed manually or with the use of computer-assisted techniques.
(xxi) Reading the interim financial information, and considering whether anything has come to the
auditor's attention that causes the auditor to believe that the interim financial information is
not prepared, in all material respects, in accordance with the applicable financial reporting
framework.
(xxii) Obtain written representation from management

(c) Following are the factors that identify significant doubt about TGL ability to continue as going 06
concern:
1) TGL has not commenced commercial production since long time;
2) Significant difficulties identified in the trial production;
3) Significant capital investment required to commence the commercial production, however, no
commitment available to provide the required finance;
4) Management has no clear plan how to make the project operational and financially viable;
5) No capital or loan commitments
6) Continued losses;
7) Accumulated losses exceeded the issued, subscribed and paid up capital
8) Negative equity
9) Adverse current ratio

THE END

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.