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a) Explain the importance of the going concern assumption in the preparation of the annual financial statements of entities. b) List four statutory, books that would be...

      

a) Explain the importance of the going concern assumption in the preparation of the annual
financial statements of entities.
b) List four statutory, books that would be of interest to the auditor.
c) Describe the substantive procedures the auditor would apply to the following records:
i. The accounting records
ii. The company's minute book

  

Answers


Kavungya
a) Importance of the going Concern concept in the preparation of the annual financial
statement of the entity
Going concern can be said to be that the financial statements assume that the enterprise will
continue in operational existence for the foreseeable future, or- put another way the financial
statements assume no intention or necessity to liquidate or curtail significantly the scale of
operation or put more simply that the enterprise can meet its financial obligations as they fall
due.
Importance
- The going concern concept will enable the company to access loans from financial
institutions such as banks as they are aware that the company would continue for a
foreseeable future and thus the payment of loan can be made..
- The-going concern concept increases confidence- and morale to the employees that the
company would be in operation for a foreseeable future thus their job security is confirmed
hence working more hard which will intern increase the productivity of the entity .
- C lie going concern concept in the preparation of the annual financial statement of the
entity is important because this will create confidence to the investors to make investments
in the company which will intern lead to its profitability and growth.
- This is important because the company will be able to plan effectively for its operation in
the future thus helping the entity to compete favorably

b) Statutory books that would be of interest to the auditor
- Proper books of account and cost records
- Minutes books of General Meetings
- Register of investments in any shares or securities not held in names its own name
- Minutes books of Board Meetings & any other meetings
- Copies of Annual Return
- Register of investments in shares of anybody corporate
- Fixed assets register
- Cash flow statements

c) Substantive procedures the auditor would apply to the following records.
i) Account balances
• I would physically examining inventory on balance date as evidence that inventory
shown in the accounting records actually exists (validity assertion);
• I would arranging for suppliers to confirm in writing the details of the amount owing at
balance date. as evidence that accounts payable is complete. (completeness assertion)
• would make inquiries of management about the collectability of customers' accounts as
evidence that trade debtors is accurate as to its valuation.
• I would perform cut off test to confirm that the records relates to that period.
ii) The company's minutes book
• I would discuss with the management on the issues discussed and recorded on the
minutes books
• I would confirm for the date and time on which the matters on the minutes were
discussed
• I would ascertain for the authority and approval on matters .recorded in the meeting
minutes.
• I would determine for the custody of the minutes books to ascertain there are no
alterations to the issued agreed during the meeting.
Kavungya answered the question on May 14, 2019 at 13:38


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