Further Audit Procedures when Events or Further Audit Procedures when Events or Conditions are Identified

Further Audit Procedures when Events or Conditions are Identified

31 When events or conditions have been identified which may cast significant doubt on the entity’s ability to continue as a going concern, the auditor shall:

(a) review management’s plans for future actions based on its going concern assessment;

(b) gather sufficient appropriate audit evidence to confirm or dispel whether or not a material uncertainty exists through carrying out audit procedures considered necessary, including considering the effect of any plans of management and other mitigating factors; and

(c) endeavour to obtain written representations from management regarding its plans for future action.

32 Events or conditions which may cast significant doubt on the entity’s ability to continue as a going concern may be identified in performing risk assessment procedures or in the course of performing further audit procedures. The process of considering events or conditions continues as the audit progresses. When the auditor believes such events or conditions may cast significant doubt on the entity’s ability to continue as a going concern, the auditor ordinarily:

• Enquires of management as to its plans for future action, including its plans to liquidate assets, borrow money or restructure debt, reduce or delay expenditures, or increase capital.
• Considers whether any additional facts or information is available since the date on which management made its assessment.
• Obtains sufficient appropriate audit evidence that management’s plans are feasible and that the outcome of these plans will improve the situation.

33 Audit procedures that are relevant in this regard may include the following:

• Analysing and discussing cash flow, profit and other relevant forecasts with management.
• Analysing and discussing the entity’s latest available interim financial report.
• Reviewing the terms of debentures and loan agreements and determining whether any have been breached.
• Reading minutes of the meetings of shareholders, those charged with governance and relevant committees for reference to financing difficulties.
• Enquiring of the entity’s lawyer regarding the existence of litigation and claims and the reasonableness of management’s assessments of their outcome and the estimate of their financial implications.
• Confirming the existence, legality and enforceability of arrangements to provide or maintain financial support with related and third parties and assessing the financial ability of such parties to provide additional funds.
• Considering the entity’s plans to deal with unfilled customer orders.
• Reviewing events after period end to identify those that either mitigate or otherwise affect the entity’s ability to continue as a going concern.

34 When analysis of cash flow is a significant factor in considering the future outcome of events or conditions, ordinarily the auditor considers:

(a) the reliability of the entity’s information system for generating such information; and

(b) whether there is adequate support for the assumptions underlying the forecast.

In addition the auditor ordinarily compares the:

(a) prospective financial information for recent prior periods with historical results; and

(b) prospective financial information for the current period with results achieved to date.