31.1 Which of the following factors is NOT relevant to an auditor’s decision to modify an audit report on grounds of going concern?
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1 .30.4 A company’s financial statements include an investment of USD45,000 in a company which is in liquidation. It is not yet clear what, if anything, will be recovered. Pending the final report of the liquidators, no allowance has been made in the financial statements. The situation is fully explained in a note to the financial statements. Profit before tax is USD200,000.What form should the audit opinion take?
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2 .30.1 Torte Co has not complied with certain aspects of an applicable financial reporting standard. The auditor concurs with the departure in that if Torte Co had applied all aspects of the standard, the company’s financial statements would not have shown a true and fair view. It has not been disclosed as a departure from an applicable financial reporting standard in the accounting policy note.What form should the audit report take?
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3 .30.2 During the audit of Tiny Co, a small company with shares totally owned by the directors, ithas become apparent that the system of internal controls is not sufficiently reliable for audit purposes.What form should the audit report take?
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4 .30.3 The accounts of Jay Co include a material receivable that management believe will be paid and does not require any allowance. The auditors do not believe that any part of the balance will be paid.What form should the audit opinion take?
A Disclaimer B Adverse C Except for
5 .30.5 An auditor considers that his work has been deliberately frustrated by management to such an extent that he has been unable to carry out a proper audit because management has prevented him from gathering sufficient appropriate evidence for accounts receivable, inventory and liabilities.What action should the auditor take?
A Issue an adverse opinion B Issue a disclaimer of opinion or resign and ensure that the reasons are made known to shareholders in a written statement C Obtain a court order requiring management to provide the necessary information and explanations D Inform the relevant regulatory authorities
7 .31.3 The following matters relate to Beta Co, a medium-sized company:(1) The chief executive officer is due to retire within six months of the year end(2) Escalating employee strikes at a major supplier of key raw materials(3) Adverse key financial ratios for the first time(4) No cash flow forecast for the next 12 months has been produced(5) Operating losses have continued to grow(6) Cash flows have moved from being positive in the prior year to negative this yearWhich of the above matters would be considered by the auditor during his planning of the audit as indicators of potential going concern difficulties?
A All of them B 2, 3, 5 and 6 only C 1, 3, 4 and 6 only D 3, 4, 5 and 6 only
8 .31.4 Which of the following is an auditor most likely to consider to be a mitigating factor when assessing a client’s ability to continue as a going concern?
A Plans to discuss with lenders the terms of all debt and loan agreements B Postponement of research and development expenditures C Plans to strengthen internal controls over cash disbursements
9 .31.5 There is no need for the auditor to consider going concern matters beyond the assessmentperiod of one year from the end of the reporting period.Is this statement true or false?
A True B False
10 .31.2 The auditor of Abrahams Co is uncertain whether the going concern assumption is anappropriate basis for the preparation of the company’s financial statements. The company has incurred heavy losses for a number of years and current liabilities have this year risen above current assets for the first time. In addition, negotiations with the company’s bankers for extended overdraft facilities are underway at the date on which the audit report must be signed. These matters are disclosed in the financial statements.What action should the auditor take?
A Give an unmodified opinion but with reference in an emphasis of matter paragraph to the material uncertainty B Issue a disclaimer of opinion on the grounds that the accounts may be fundamentally wrong C Give an unmodified report on the grounds that the negotiations with the bankers are incomplete ...
