5 m0 GONG CONCERN a CHAPTER 23 SUBSEQUENT EVENTS [AND GOING COT INTRODUCTION A subsequent events review and examination of — — key matters for the auditor and they are important because: cf Financial Poston can shed Kah on every. ofthe Statement of Financ amp, the issue of Boing concer ay ‘© an examination of evens since the date ‘accounting period, and to 's presentation, a decison as to uhetner r no an eit is 2. ging concern i crucial 10 Bocouns Present : ‘ee of judgement, particularly in the case of In both cases auditors may have to exercise some degré Dae acetal of concern decisions, and will need to document carefully both the nature of any uncertainty they have ay rationale for the eventual decisions they make. SUBSEQUENT EVENTS ISA S60 Subsequent events states: “Financial statements may be affected by certain events that occur after the date of the fnancy statements Such financial reporting frameworks ordinarily identify (a) Those that provide evidence of conditions that existed at the date of the financial statemey and (b) Those that provide evidence of conditions that arose after the date of the financial statemen ISA (UK and Ire-land) 700 explains thatthe date of the auditor's report informs the reader tha the auditor has considered the effect of events and transactions of which the auditor become aware and that occurred up to that date. (Author's underlining) two types of events: Systems-based auditing If they are using a systems-based audit strategy during the course of their checking work, the auditors wil have spent most of thei time looking at events and transactions that occurred in the financial period beg audited. Only’a limited amount of their work will have involved them in looking beyond the yearend. Far example, such work as reviewing payments of receivables balances after the year end, tracing unceard ‘cheques and uncredited lodgements from the bank reconciliation or carrying out audit work on the clens cut-off procedures. Risk-based auditing If the auditors are using a risk-based auditing strategy their work will not have encompassed the sine led of detailed checking work but, on the assumption that they will have carried out some level of substanie testing on the Statement of Financial Position, they may well have carried out some, if not all, othe ab procedures. ‘The consideration of business risk will not have stopped at the year end, however, and events since Statement of Financial Position date will have a direct bearing on the auditor's view of the financial tater ‘They will be interested in: ‘¢ events since the Statement of Financial Postion date in any particular high-risk areas they have identifd {¢ material ransactions since the Statement of Financial Postion date in Key business risk areas or areas vero ‘or manipulation of nancial accounting is considered feasible or possible ‘¢ results since the Statement of Financial Poston dato, consisting of management information incding cash Casts, 1o assist a general overview and analical review of the nancial steromentsrors should consider the effect of su {ie ring the period between the end fie ‘€Vents on the fi fF he events which shed new light on ghe petal period Rinna statements and on the Auditor's ws rts ofthese SOS of events ares « financial statements. date the Auditor's Report is signed roeation of NSONENEY OF 2 Coe arte yg Jments to inventory Or Werk in progres €7d resting in cust = aetjeabe or where a SeDUte has arson steer arp, ‘2dhistinent of the bad debt provision respect here fished goods ent be specie Ohana onan hace ae re busess, for xno whee th comparystankeate i SW to th ancl ct of ttecompany in order to continue is 800 renew overra acies or prove a tpisve of new shares. SBeraions athe curentewt PAB aloon which j change inthe way the business is carted on, for shops and concentrate on sefing over the inten "MP # Cothing retaler decides to cose al ts righ street seer not all events happening after the period en ter neds tobe aware of them in order oan 2 es les the Sani statements although the filmean thatthe accounts will have to be amended to take accoume af them; pies oa in the accounts or inthe Di enon in a note tot ts oF inthe Directors Report, some may be safl let until next year’s accounts. ADJUSTING AND NON-ADJUSTING EVENTS The are defined in Financial Reporting Standard (FRS) 102:32 ~ Event after the End of the Report Teiod From the list above, events such as: eae tee Keporeing, « theinsovency ofa major customer owing a det ntich s material, {ato witing down the values of inventory and workin progress, or {aor problems with fancng the busines. ‘ould be likely to mean that the accounts would be adjusted because they cast new light on something which ead existed at the date of the Statement of Financial Postion ‘These are adjusting event However, again from the ‘© anissue of shares after the Statement of Financial Poston dat, or ‘© change in the way business was conducted after the yearend in a note to the accounts or the Directors’ Report ~ these are non-adjusting further information about something, which existed within above, events such as: woul! only require including ‘ams. In other words, they do not give us am ‘teaccounting period ~ they are simply events This concepe can be difficult ro grasp someti financial period end. It could be argued that the tower, this would be an eror because a the dates RI ‘is complete an yurned state so it has to be reflected a 7 ceil na i cg amc lh Svapety, they dee cron a condicon which acral exited at the Statement of Financial Position dats ‘which happened within the financial period Se Obviously these re only ‘examples and there are many types of events hich could happer * cision would have to be made. halter discussion with the auditors, he Sc uitors think they should, the auditors wills will look ae this later in the chapter. snes. For example, a factory burns down a month after the factory existed at the period end and so this event relates to he date of the Statement of Financial Position, the factory winess decide not to amend the accounts when 1s of the bus directors of he eth efec of this on their audit report andM0 GONG CONCERN ae CHAPTER 23 ‘SUBSEQUENT EVE NTS AND GONG © AUDIT TESTS FOR A SUBSEQUENT EVENTS REVIEW ISA $60 states: “The auditor shall perform audit that all events occurring between that require adjustment of, or disclosure its not, however, expected to perform addition. ‘audit procedures have provided satisfactory tn order to salty themselves thar all events alr the yearend bave been appropriately dew disclosed in the financial statements, the auditors should carry our ccriain aut Ae “These wil taclude reviewing management's procedures for identifying suSseqNon e¥#ats hich afc the financial statements in any way. One way to do this is by reading mindies © hoard matings ay holders or other committee meetings since the Statement of Financial Postion tn ag ra discorced at meetings where the minutes are not yet available. Clearly reviewing management acco eueeeane oss Mefoanatamsine the Statement of Feel a ne andenuis i Wisore about outstanding legal matters are obvious areas which may reveal the existence of signe pails reser er pean re esmaters which have already been dealt with but on the hy preliminary or inconclusive information and whether any new borrowing or guarantee commitments yy been entered into ‘Auditors should make enquiries of senior management about matters which may not be the subj formal minutes or of which members of staf have no knowledge such as: (© dtals of any proposed or actual major additions to assets ‘¢ Whether any mergers or acquisitions are planned or any new issues of shares ‘© whether any assets have been appropriated (e.g. nationalized) or destroyed: any developments in areas of hy where contingent labities have been identified fe Whether any unusual accounting amendments have been made or are planned to be made, e.g, reversal actions recorded during the fancial year ‘© whether there are any events which would cal into question the appropriateness of the accounting poices se ‘or accounting bases adopted, in partcular that of going concern “obtain sufficient appropriate audit ey ements and the date ofthe auditor statements have been identified. The ander Gr matters to chick previous procedures designed jhe date ofthe finan the financial wal audit procedures conclusions. (One audit test which should invariably be carrie out is to review transactions since the yearend fore or unusual items such as sales of assets, issues of credit notes to many customers on the same date (asd reverse fake invoices entered before the period end), exceptional discounts allowed or received, commissies paid, etc. ‘Auditors should review transactions after the period end for any material or unusual items which may at have been disclosed in the financial statements, Their work on validating the values of assees and lis should cover most ofthe review work and inspection of minutes and discussions with directors should, exer in the case of serious management misrepresentation, provide the auditors with the information they reat The auditors may well require written representations in the form of a Letter of Representation fos ‘management (Chapter 24) in respect of the detail of such events and would certainly require confirmatios asa minimum, that all material events have been disclosed to them and that no details have been withheld Events after the date of signing the Auditor's Report Note that there i no obligation on auditors to apply procedures to discover relevant subsequent evens 02 the date of signing ther report tothe date of laying the financial statements before the compart, e& 2 the da al statements before the company © However, if the auditors become aware of such events they should discuss the matter with the drs coosider the implications for their report and take such actions oe meee wn a8 may seem necessary depending significance o the company, and thus tothe financial statemens, ofthese of the events,OWPTER 2: 3 u UBSEQUENT EVENTS AND GON NG CONCERN ot ine nancial SateENE ae amend wet acorn. This an be ee a fjional audit work bas been Performed 0 uditors wil ill need to consid ing. revised repo ler the amendments and revise mould be: ime agers report with separate dat recording the fact ing wom Pect of the subsequent events only: for example, the Myre of audit's rePOTt). EXCEPE as to Ne ¢ to Note Y, which is ected (0 ‘amendment described in Note ¥)- which is as of (date of completion of audit procedures nancial statements h jane financial ave already been issued iniitors are advised to isoued and mana fears ate adie ro sek pl advic to what nigh dors popor ro cl ofan ‘might he Jone to prevent reliance on thie Mich, of course, will not include a » lude any reference to the subsequent event and its effect on the financial fore GOING CONCERN iroduction “Going concern’ states: bility is to obtain sufficient appropriate audit evidence about the appropriate- sas the auditor's responsi se management's use of the going concern a cern assumption in te preparation and presentation of the iy cad condade phate hers « moar aceon) "Boa the ety sbiy financial statement timontinne as a going CONEY. ental accounting concepts is that the fin ng concern basis and FRS 102Events after the tobe prepared on a go! wherein © make aM assessment of the enti’ abil to contin as 20 this mean? “The assumption is Inother words, that: the management wil be able to ancial statements of a company are assumed nnd of the Reporting Period! requites (One of the fundam jing concern — but what docs that the business will carry on its activites in the same way forthe foreseeable farurs: influence the way the business is uns . atts products or sarvices wal conte to be bought by #s stoners: +b that suppers wl continue to supply it; and ‘that t wil have the cash to fund its operations. ‘Thelas point is probably the most important of all. Most Ipusnesses fail because they un out of cash ane jod of one year from the date of defined as being for @ pei his is a longer period than the period ‘specified in FRS 102 financial statements were authorized for issue, are able to pay their bills The foreseeable future’, approval of the financial staten which i simply between the perio. for this purpose, is ants, Note that xd end and the date the INDICATORS OF PROBLEMS ors which might, hensive buc ine! 1 going concern problems. The list i material uncertainty exists: show actual 0 pote Judes indicators that Auditors should be alert to indi below is not intended to be compre! Financial indicators ‘© pat fabity or net current fabitty postion trout roaistc prospects Cf renewal oF repayment: OF eX « taeaterm borrowings approacring mate wit relance on short-term borrowings '0 finance fong-term assets16 CONCERN SUBSEQUENT EVENTS AND GONG ONG a CHAPTER | crests ications of wicraval of franca SUPP roa aye franca statements: averse kay e sah assets used to generate, 5a rs nun eH nO Rag Sst opera bss rear or dacotnancn odes & avi pay cesrson ects < raniy eons wine temectieonepeeres Chango set caso cy ast "evelopment or other essential investments inabilty o obtain financing for esserial new product Operating indicators management tertions to kuidate the entity orto cease operations Ip ‘© 105s of key management without replacement © ceota major market, key customers. ranetise, cence, or principal suppl) (© labour dificultes, loss of key member of staff ‘© shortages of important supplies ‘© emergence of a highly successful compettor Other indicators ‘© noncompliance with captal or other statutory requirements «pending legal or eguiatory proceedings agains the entity that may, if successful, result in cams that he ery Untkely tobe able fo satisty ‘© changes in aw or reguation or government poloy expected to adversely alec the entity ‘© uninsured or underinsured catastrophes when they occur Any or all of these might mean than the company will no longer be able to carry on for the foreseeable future, ‘Again, it is the responsibility of the management to come to this decision and draft the financial statemensy accordingly. Ie isthe auditor’ job to validate that assumption, CONSEQUENCES OF GOING CONCERN ‘The adoption of the going concern basis in financial statements means amongst other things: ‘© Assets are expected to be used for many years into the future and depreciated accordingly. Abandonment ote going concem basis would mean thatthe enterprise might have to immediately sell its assets which may fcr ‘small fraction of ther book value. ‘© Lables are recognized and measured on the basis that they willbe discharged in the normal course of busrss ‘The Statement of Financial Position shows payables due after 12 months and payables due in ess than 12 nants ‘Abandonment ofthe going concern basis would make them all payable immeciately. If financial statements are drawn up without the going concern basis, then: ¢ Allassets would be valued at net realizable values. Most would have much lower values than going concem vaues © Allabities would be shown atthe amount due. In ado to lables akeadyidentited adcorl ons rat ‘have to be provided for as a result of the possible closure of all or part of the operation of the business such a © redundancy pay closure costs losses on sales of ans penalties and guarentee under contracts clas trom customers eeeeA 570: gpeCTORS' DUTIES cl pee erently optimistic, so whilst the outeyy i The prob well retain an attitude of ms Problem is that directors tend to eee sunny opeimic the dispassionate observer, the compan} amy that they come to ther eH cues them to downplay ther opinions. Aud "eho may’ be unwilling to face the inevig ene OR Cone to ay a pices i. th vate lusions which may differ from those of their : ' are specific di ment of the validity of the Going Conc isclosures the directors have se Shem that the bats he sel epg Fosse Sa seh ectors’disclos disclosure in the accounts is valid. These include ~ per (a). The directors’ confirmation in the ann the principal risks facing the entity, in ap et that they have carried out a robust assessment of performance, solvency or Havidies "6 those that would threaten its business model, future ). The disclosures in the annual report that describe tho aged or mitigated; those risks and explain how they are being man- io) The directors’ statement in the financials Oi pie: po ae statements about whether they considered it appropriate material uncertainties to the entty’s ability te contbene Gee a te identification of any Monts from the date of epprovl of he ea cc toa pried of at let le {d) The director's explanation in the annual report as to how ther h Tyo ht prod hat a el es Mandan a ee es ei ter tee Pe Webco apna ol nr ctr pea assessment, including any related disclosures drawing attention to any necessary qualification or assumptions. rosin attention (a a) ary, quolifentions The work carried out by the directors and reviewed by the auditors comprises three parts: 11 Firstly the drectors should consider the inherent risks inthe business suchas: ‘The nature of the business. The future of a civil engineering contractor is inherently more uncertan than that cof a food retailer. ‘Smaller entities can be more vunerable than larger ones, partici to factors such as the oss of @ major ‘customer or a key member of staf. ‘¢ The riskiness of the company or its indust tomers; a highly geared company is more at sk than an al Exim intuences, for example, a change nlgistaton might increase costs o such an extant ress becomes unviable. — — © rectors dhould assess the entity's exposure 10 coningntiaitis, For example, where compan Feuer putes the scope fr coring kbd, whch ma rene roses gd eo large rec apne Kure, & much highs hana company wich doe At Nave May ASAE Seoondh, they shoud review their opratns and consde te vty of Pe assumPuons which under: © forecast financial statements © budgets and strategic pians ‘© cash flow forecasts should prepare asenstvity analysis in order For example, an entty, partouary a medum af ep tea eg © to understand any crcl assumptions On WA cas ana forcast aac 1 changes m verabas concep which involves assessing the exer OW? such as changes in interest rates and exchange ty. A.one-customer fir is more at sk than afer with many cus: ‘equly one when interest rates are rising that the bus:‘AND GONG CONCERN aad CHAPTER 23 SUBSEQUENT EVENTS: rt 2 They, hey need to revew the ancng ofthe business, Doth CUremy and forthe Foreoeaia pg = in the same thal sficent trance avtabe to conve cst operations he sme way fr he ores without tha need for major refnarng ; © that france s avaliable for future plans or develops rectors should take account ofthe hing of cash Hows ; ‘cash due to take place in the period, directory For example, if he company has a large outflow of cast ; a ’ assess how this outflow of cash can be matched tha hee eee mei larly importane i: company has a large tax lial to be settled or if loan repayments Fal ke The aces eS jaa Hind document these considerations ro evidence that they have considera. going concern position. THE AUDITOR'S PROCEDURES auditors, when forming an opinion as to whether financial statements give a true and fit view, sh cout ht Mo continue asa going concern and any relevant disclosures inthe financial gat iments. The auditors should review the management’ processes (above) for establishing whether or non entity isa going concern, over the same period the management has used, which has to be for more thn 3 months after the dae the accounts were approved. Ifthe directors have carried out a review for ls thn months, the auditors must ask them to extend i. ‘Note thar iis not the job ofthe auditors to decide whether or not the entity is likely to bea going cone for the relevant period, itis the job of the management to do so and itis the job of che auditor to venir they have done so adequately. The auditors have o gather sufficient, appropriate evidence to satisfy themselves thatthe going cone basis is appropriate. This must be done in respect ofall audits, no matter how viable the company appein to be, The auditors must be able to demonstrate that they have considered itso must document the dca For example, it may be necessary to asess the adequacy ofthe length of time into the future thatthe dieon have looked, This may depend on the nature of the business, eg. company engaged in long-term contasey may require an assessment overa longer period than, sa facture. ‘This is particulary the case where a risk-based audit strategy is being adopted. Ieis dfficuleto be comprehensive and auditors should adopt suitable procedures foreach individual dt in order to obtain the evidence they need but some possible procedures ate: '# Assess the adequacy of the means by which the drectors have satisfied themselves thatthe adogtion oft gorg concern basis is appropriate, © Bxamine all appropriate evidence. 0.9. budgets, forecasts, minutes of meetings, eto. and assess the telaby ‘such budgets by reference to past performance. '¢ Assess the systems or other means by which the directors have identifed wamings of fulure risks and uncetrtes Consider the adequacy of guarantees and indicators of support from holding companies where the ety member of a group. Roading the terms of debentures and loan agreements and determining whether any have been breached. ‘Examine management accounts and other eports of recent acthties. Contact legal advisors for information concerning claims or labiti the company may have to face. Consider the sensitivity of budgets and cash flow forecasts to varable factors both within the contol tthe dred? (0.9. capital expenditure and outside ther control e.g interest rates or debt collection) ‘¢ Review any obligations, undertakings or quarantees arranged with other entities for the giving or recevng 8 por. Other enities may mean lenders, supplers, customers or other companies inthe same group. 4 UK comes ‘may be viable in tse but may have glven guarantees to other members of the group and when, say, ne room ‘company in Australia fails the UK company goes down with it ‘© Verity the existence, adequacy and terms of borrowing facilites and supplier credit and consider tne deaan were 23 sung 29 SUBSEQUENT EVENTS AND. GONG CONCERN 5 cuore ety an 0 el th nag 1 Eater te vae Of 0 OE assay or borownn . ‘errespondence with bankers ether exsiny or my oes Proposed. pantcuaty wher facies ara coming UP For te cn of males ents faring may be dependent on comin sp rom owns sc ean ‘Where this is the ao any claim to that of the bank or the giving of sem er a sas) temsles a 0 theo Se erent har sapebersemgeer or ea risa sully a sondion of contd spy om et ‘sn sosk nora he Key assumes undying the budgets, forecasts and other information yi sropatenes ofthe Boing concern bana Sack ane eld eat opal lng he wa the diestos should have frm intentions eee . Final ieacee ani ie all the information they have and “all the audit evidence available and vr documented. Boing concern basis. They should always have all their evidence and hhould communicate any concerns th rns they may have tothe Audit Committee seting out the basis Sate ee aac ee fea wos clusions “uiors st ir concer forth EVENTS ARE IDENTIFIED are identified which cast doubt on th even 3 1€ appropriateness of the going concern basis the onus is on actnent to demonstrate to the auditors that they have identified the problem and have plans ro deal with ‘The auditors must: «dew th plans and consider ther adequacy. tthe audtors consider the plans inadequate and that he co fr the plans inadequate mpary Eke fo fal they must Consider an adverse opinion in thei attr report (Chapter 26) the crectors wal ok tend the financial statements to reflect the oss ofthe golng concern assumption. Consider ia material uncertainty about the company’s abilty 0 continue as 8 going cor read to be brought to the atteniton of the shareholders. Sock written representations from management as to its ert, appropriate evidence of anything but the auditors need it management and be approved by the Board of Drectors. entialy ingolvent subsidiary company they should ook to the holding + actors are deaking with an actual or po! aaa or puaranizes of continang franca sport partcuary where theres Considerable ete Company Raa Orne eflect on the holding company of ging such support must be considered aso, Cary, the auditors will need to carey out audit procedures in espe ofthese plans They should consider low realise they are, the reactions of lenders or bankers, the effect on customers and suppliers, the effect okey members of staff and the consequences of any ‘breaches of the tcrms of any lending and whether this will render any plans inv: the neem exists which might plans and the expected outcome. This may not be suff. “This must come rom the top level of te company’s FECT ON AUDIT REPORTS vent the auditor's reporting will be based Chapter 26 but for the me Vewill look at this in more detail ‘mthree possible scenarios: 1 Tguing concen asl sve but a materi uncoraty out he ay of the franca statements. tthe nature of the aoe i The audit 1 how well this is explained has conan wal NG ec Parone Uncertainty is fully and property expla ‘company to continue as a goingJBOEQLENT EVENTS AND GOING CONCERY a CHAPTER 23 St voter he en made adequate disclosure in the financial coals eo "0 Going Concer.” Ths shoud hg ~~ A eet a el st center uncertainty exists but that the Auditor's Report has not been modified or at fit Wee 2. The waste cagpen vat the rector’ approach 10 we franc eatements OF te conan, accounls. Ether the company is clearly nol gor. ea ene pias te oe ay = oerng acts ce re Ft cel tors consider that the use of the going concern basis Is inappropriate OF is oe par a tact rhc eer ean ar on sore ree pentane 2G pn ae tir naan oncom tena ' disclaimer of opinion (ve. a statement by the auditors that they will not express any Kind of opinion cng truth and fairness of the financial statements) may also be appropriate. Of course the ™ with everything the directors have done and the financial state at all but they will need to include reference to the disclosures made by the directors in their Auditors Report in a separate paragraph. ‘One thing to bear in mind is that any qualification of a set of financial statements in respect of going con. cern is a very serious step. Indeed, it may precipitate the very thing the company does not wish to ‘happen if as a result of the qualification, creditors or lenders take fright and financial support is withdrawn, tment ty ay GOING CONCERN AND SMALL ORGANIZATIONS Small organizations have more going concern uncertainty than larger ones as they are often vulnerable w cash flow problems, have a limited numbers of key customers, have few reserves to cope with significant ad debts and may face much larger competition, ete. Lack of proper management information and limited financial expertise can compound these problems This is where the auditors can be drawn in to acting as quasi financial directors if they are not careful. For example, consider a situation where a client requests advice in preparation of budgers and cash flows te audit firm prepares them and then discusses them with the direetors. Great care must be taken to ensut tht any decisions taken are taken solely by the owner/managers and not by any member of the accounting fm ‘who may later act as auditor. Directors of small companies should consider taking advice to ensure that disclosures and accountng treatment of items within the financial statements conform to the relevant standards. SUMMARY ‘¢ Post Statement of Financial Poston events, events occuring in the period between the end ofthe finance" ‘and the date the Auditor’ Report is signed, have an effact on the financial statements, ‘© Author for the treatment of post Statement of Financial Poston events is found in ISA 560. ‘© Auditors should apply procedures to discover the existence of relevant subsequent events which occur fam the date ofthe fnancial statements tothe date of signing the auciters reportCHPTER 23 egy SEQUIM EVENTS Wn coe, GONG CER ur vert ry reqUre the amounts sore {oe acute pt of France Postion date. Other events may by on ae © Oven or concn which exeted at tre State ‘concem Is a major issue, eather cont ie Cause any austen of the accounts ays felled, Taso eears ewckaavnnnerte 7 vow on coh Sasa crc Tee ehcence rut anor ay decane ene ee fuged SC dogs wn us Carman Amat ety vith the Bark and tr ae ce BO otis. Hn these direct Nd form an opinion onthe bank’ atttuge to eons need to confi sgmoter entitles are more vulnerable than larger ones and often rey oe en SUP POrtNG tho company, There are numerous situations where going concem | ee emaccan ‘asi isan issue. Some of these are financial, some oper: ona.gong concern basis, ifthe financial statements are not prepared on a ‘orcumstances and the auditor concurs then an the Auditors Report. ‘he gy rea when hee are dos abot gong conc bh au tore hat he gang cto th going concern ts 9s ae anda vw. aden casi masta sosnl chou gr adenae spars the stuaton and the crectors' assumptions they othe austen shou rose crag tnbecpnion but ot aust thor repo. tenses reinadogua, hone dion sheneatn er een The ging concer asi is one of he sues equingmeton hereto om ; UK Corporate Governance Code. Poet menae '90ing concern basis, there are adequate explanations of the ‘unguatfed opinion is appropriate wth a spate cisclosure in POINTS TO NOTE Aout fom reviewing the period trom he Statement of Franca Poston date to when the ax reports ined tor ‘sgniicant events auditors should be aware of attempts to ‘window dress’ the accounts, Ths isin connection with the. ads ecponsbities under ISA 240 The autor esporsbites rng to faudin an att of arc statements. 1 simportant to understand the ciference between adjusting and nomracusing evens, They to this to ask vihathr The overt ron Teor chads mors ion something which was nexstenco a the dat fie Statement Ci Francia Postion and ves et. sig, one-off event when hanpenedin he new france period but whch has "70 bearing on values or estimates which existed at that date. The going concern nbn tothe enters 282 whole 0 a pat ony For earl, principle can be considered in "a vanch was not.a going concern. realzable valve of assets would nead tobe substituted for book values and ‘new labilties may appear in respect of the branch. Tre probabilty that Man auctor’ report may bing about receivership oF tquidation ity that a going concer qualia ot evan at gong concen uation a Ea amma or Say ®0 should give their opinion without fear ofthe consequences tothe cfent.cipenomnoeoaGneen seerespr ones sce e280 + ecommerce eg mmr ay a an cc, Te wo ahd Ft caer 8 CuapTeR 23 SUBSE CASE STUDY 1 Nr cera ncciventor: ens noeer cet Set mm crac en ec can mesepe motes, Porcoreten at pcan Sg anatase ‘Saya emanate a ona eamnan sara cus ouare Ronee eS rena ao Rememecmmsumamrsgeyan cvomgmamnme are these oe aoe cr ante enced ete oars xt ot ae Oates anrengmeny te octen cert enya eet Se Sa eae renee eacene ive amen aden Discussion ~ List the procedures thatthe aucltors should adopt post Statement of Financial Position events. What particular futher facts should they eb with regard t0 (a) and (b)? What might be the sgrvfcance of these tems for the accounts? CASE STUDY 2 Pago Man acting id pert ents cama aa assembles hem a tro mek ct summer gadgets which appeal to a younger market. They have traded successfuly for many years because of favourabio market conditions and extended thet factory in 2X10 withthe aid ofa very large bark ban ‘because they anticipated a futher increasa in sales as they brought some new products to the markal. ‘The company has always been short of working capital as it paid for the components before they were deiwered, inorder to help the cash flow of ther overseas suppllars, some ef which were in devsiopnd ‘Countries, They also havea substantial overdraft wrich frequently exceeds the fact. _Sadhy the expected increase in turnover never occurred because the market suddenly decined due to ‘8 cred squeeze and the fashion for buying fay pointless gadgets came to a sudklen slowdown Discussion = What evidenee would the directors have fo produce to justiy concer and how mgh he auditors vidas the evienca? nt OB/HO" thatthe company s 898 MMCHAPTER 23 9 * SUBSEQUENT EET wn conn 5 CONCERN nent SELF-TESTING QUESTIONS sam answers apparent rom the txt A ape en ln rg om ‘ end, but belo the Actors re yO Report is {en cng the AAU Of the company was yea Me 28 ae How great roo! Megablon care ther anes factory ‘Should this be treated () nthe accounts and () By a gn auctor’ duis in respect of| gerne mt events on 4 S25 paral stterents blo he company ‘Scouring between the date ofthe. e se ag concer bas 2 are mes hen beoteecinsatan wreceenercs toe ancl sleet cel aden aimee asin respect of gong corconbeas ng concern bas 1 ite aust’ procedures i 1 ane possible audtor’s reports 1 | See X Compre Governance Code ee ror EXAMINATION QUESTIONS Inara a + min wot aan et ec cnerans owen eee naa wanes racer wen nae poe ia Berard to sor he ctf aren aro wate eee wip in ote tn ee ecco Srontapanon teas errant retain ). Ata meeting in May 2X16 the local planning author rejected the company's plans to develop one of ts treehokd Harsongehay Bieta eran estan se te Totevagrevannin cy fe nrg oso Pl 0 tsa ara en oot “sug econ dg i A cer tvs tatters ota dae grag fcc nen tr an ha en Re eed tuanaar oe ee mere hea a EOC a Peaured: {e)Oscuss generaly the effect which facts and events reaing loa ped but bocoring wnown of ocr aero era \pecourtng pard can have onthe foal statements fr the period n avaston, Com ae aw tha he books and records rect what was known a he year nd anc rat no tamer ahora requed py I scars 0 Eu shad acpin cero det pot Sater l Fan pp a Jescribed above, list the detailed work which the auditor should {@) In respect of each of the three events 0 Undertake and comment on the (refusal of planning permission: {completion of long-term contract c rade investment gt eens ce companys dacson not 0 acustits Francia tatemarts Se aeGONG CONCERN eal cyneren za SLESEQUENT EVENT AND GONG ON whose pins! act he eds 1d Steady Edd ates 2 Youre planning te extra au tS ng fteinginirmation respect of I ear ede 3 haulage seroes. You have bee sro 3 May 2x16. Tis iran ce 8 oe 8 make coon npetor td oxomptona eats ered ncaa os ping is Ye on ) Fa rey epee Pooan wtnn OCEAN AIS reeisiasyacm mcrarnorg en as oan a Tho overeat acy ft be reviewed byte bark n Soper 2X16 a rea 2a. | 4 ich are cuenty fr sae oe a yet te ta ann Hera pariod of four months. A condtin Nr tea cho fr eng ae Py lasso he cat saceazentn rover Trans Guerrier eye ta an an OStenyoy wae ae eeeat ets sawn meena sear a erase en erst Pramas bea ec oa ‘companies to fund the acquisition. Roguied (2) Expan what is meant by the going concern concept and why the auditor should conser whether acm, ‘pany isa going concern. (©) Explain the circumstances particular to Steady Eddy which may indicate that ts nota going concen (6) Identity the matters to which you would direct your attention during the subsequent events reven, nity aucit of Steady Edy caw) SOURCES AND ADDITIONAL READING Financial Reporting Council (2015) FRS 102 The Financial Reporting Standard Applicable in the UK and Republic of hes London: Financial Reporting Council, Financial Reporting Counc (2016) ISA 580 Subsequent Events. London: Financial Reporting Counc Financial Reporting Counc (2016) ISA 570 Going Concern. London: Financial Reporting Councl. Financial Reporting Counc! (2008) Going Concern and Liquidity Risk: Guidance for Directors of UK Companies, Lords. Financial Reporting Counc. Financial Reporting Council (2016) Guidance on the Going Conca Basis of Accounting and Reporting on Sovncy ad Liquilty Fisks Guidance for Directors of Companies that Do not Apply The UK Corporate Governance Code. Lord Financial Reporting Counc