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Going concern concept is a fundamental assumption underlying the preparation of the financial statements. What are the procedures you would perform to ensure that the going...

      

Going concern concept is a fundamental assumption underlying the preparation of the financial
statements. What are the procedures you would perform to ensure that the going concern is
appropriate for you audit client.

  

Answers


Wilfred
The procedures to ensure that the Going concern is still appropriate to your clients include:
•• Assess the adequacy of the means by which the directors have satisfied themselves
that the adoption of the going concern basis is appropriate.
•• Examine all appropriate evidence.
•• Assess the adequacy of the length of time into the future that the directors have
looked.
•• Assess the systems or other means by which the directors have identified warnings of
future risks and uncertainties.
•• Examine budgets and other future plans and assess the reliability of such budgets by
reference to past performance.
•• Examine management accounts and other reports of recent activities
•• Consider the sensitivity of budgets and cash flow forecasts variable factors both within
the control of the directors (e.g. capital expenditure) and outside their control (e.g.
interest or debt collection)
•• Review any obligations, undertakings or guarantees arranged with other entities for the
giving or receiving of support. Other entities may mean lenders, suppliers, customers
or other companies in the same group. A Kenyan company may be viable in itself but
may have given guarantees to other members of the group and when, say the holding
company in Uganda fails, the company goes down with it.
•• Survey the existence, adequacy and terms of borrowing facilities and supplier credit.
•• Appraise the key assumptions underlying the budgets, forecasts and other information
used by the directors.
•• Assess the director’s plans for resolving any matters giving rise to concern (if any)
about the appropriateness of the going concern basis. Such plans should be realistic,
capable of resolving the doubts and the directors should have firm intentions to put
them into effect.

Finally the auditor should review all the information they have and all the audit evidence available and consider whether they can accept the going concern basis. They should always have all their evidence documented and their reasoning explained fully in the working papers.
Wilfykil answered the question on April 13, 2019 at 06:59


Next: Walsh Co sells motor vehicle fuel, accessories and spares to retail customers. The company owns 25 shops.
Previous: Explain the directors’ responsibilities and the auditors’ responsibilities regarding financial statements prepared on the going concern principle.

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