Question

Entity B is an Australian company that has its financial year end on 31 December 20X6. The auditor's report is dated 31 March 20x7. The audited financials were tabled at the AGM and approved by the board on 20 April 20x7. The entity plans to liquidate on 2 February 20X8. According to relevant auditing standards, which of the following is most correct? The plans to liquidate is irrelevant as it is an event after the reporting period. O The financial statements should be prepared on a basis other than the going concern basis. Going concern considerations would be limited to the audited period ending 31 December 20X6. O As the matter is material to users' decisions, management need to consider mitigating factors that might serve to offset the conditions casting significant doubt on the going concern of the business.

Answer 1

Option-4 As per ISA 570 Any events or conditions that cast significant doubt on the entity ability to continue as going concern shall be considered by the Management and take actions to mitigate such factors. Like Rescheduling the loan, selling of assets for immediate funds or obtaining capital investment through issuing Shares, debenture like such instruments. These help in offsetting the factors that cast significant doubt. An auditor need to consider and obtain the proper evidence whether the management has taken necessary action to those conditions or there any other mitigating factors. Option-1-Not correct As per ISA 570, Auditor need to consider the whether the management is planning to liquidate the entity in near future. Even though it is an event after the Reporting period this might affect the users decision on the balance sheet date. Going concern is one of the basic assumption in preparation of financial statements, plan to liquidate the entity is relevant on balance sheet date. Option-3-Not Correct As per ISA 570, Auditor responsibility to perform any procedures should not cover beyond the period assessed by management which should be at least twelve from the Balance sheet date. Management needs to assess for at least twelve months if not done auditor have to request the management to extend the period for 12 months. Option-2-Not correct As per ISA 570, Financial statements are prepared on going concern assumption basis unless the management either intends to plan liquidate the entity or cease operations. The entity plans to liquidate on date 02-02-1=2008. There is no intention to liquidate on 31-12-2006. Entity need not prepare on a basis other than going concern.