Question Tag: ISA 560

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  • 7 Marks

AA – Nov 2015 – L2 – Q2c – Audit and Assurance Risk Environment, Completion Procedures and Reporting

This question covers auditors’ responsibilities for subsequent events and going concern assessments, as well as internal control reporting.

c) Technolab has an internal audit department. The partner in charge of the audit is seeking clarification regarding how any deficiencies in internal control should be identified and communicated to management. The partner feels the report produced by the external auditors may duplicate the report produced by the internal audit function.

Required:
Explain how the purpose and content of an internal auditor’s report on internal control deficiencies differ from one prepared by the external auditor.
(7 marks)

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  • 14 Marks

AA – Nov 2015 – L2 – Q2a and b – Audit and Assurance Risk Environment, Completion Procedures and Reporting

This question covers auditors’ responsibilities for subsequent events and going concern assessments, as well as internal control reporting.

You are an audit senior for an audit firm and are currently working on the audit of Technolab, a company that produces sophisticated electronic laboratory equipment. The company imports a high proportion of the components it uses from China. The equipment is used by some laboratories dealing with hazardous chemicals.

As the audit draws to a close, the partner in charge has asked you to ensure that all procedures relating to subsequent events and going concern are properly performed. You are to consider the audit work to be performed in relation to ISA 560 Subsequent Events and ISA 570 Going Concern.

Required:

a) Describe the auditor’s responsibilities for subsequent events occurring between:
i. The year-end date and the date the auditor’s report is signed.
ii. The date the auditor’s report is signed and the date the financial statements are issued.
(6 marks)

b) Going concern relates to the judgment that an entity will continue to trade for the foreseeable future.
i. Explain the responsibilities of directors and auditors in relation to going concern.
(3 marks)
ii. Explain the audit procedures that the auditor could carry out when conducting the going concern review of Technolab.
(4 marks)

c) Technolab has an internal audit department. The partner in charge of the audit is seeking clarification regarding how any deficiencies in internal control should be identified and communicated to management. The partner feels the report produced by the external auditors may duplicate the report produced by the internal audit function.

Required:
Explain how the purpose and content of an internal auditor’s report on internal control deficiencies differ from one prepared by the external auditor.
(7 marks)

Total: 20 marks

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  • 10 Marks

AA – April 2022 – L2 – Q4a – Completion Procedures and Reporting

Discusses the need to amend financial statements based on subsequent events and the auditor's responsibility in the post-year-end period.

a) Aseye Ltd is in the manufacturing sector and its year-end is 30 September 2019. The final audit is nearly complete and it is proposed that the financial statements and audit report will be signed on 10 November 2019. Revenue for the year is GH¢80 million and profit before taxation is GH¢9 million. Subsequent to the year-end, a lawsuit was filed against Aseye Ltd. Below are the details of the lawsuit:

A key supplier of Aseye Ltd is suing the company for breach of contract. The lawsuit was filed on 10 October 2019, and the sum claimed by the supplier is GH¢2 million. This has been disclosed as a contingent liability in the notes to the financial statements; however, correspondence has just been received from the supplier indicating that they are willing to settle the case for a payment by Aseye Ltd of GH¢1 million. It is likely that the company will agree to this.

Required:
i) For the event above:

  • Discuss whether the financial statements require amendment. (2 marks)
  • Describe audit procedures that should be performed to enable the Auditor to draw a conclusion on the amendment. (2 marks)

ii) Describe the auditor’s responsibility for subsequent events occurring between:

  • The year-end date and the date the auditor’s report is signed. (3 marks)
  • The date the auditor’s report is signed and the date the financial statements are issued. (3 marks)

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  • 10 Marks

AA – Mar 2024 – L2 – Q5a – Completion Procedures and Reporting

Identify subsequent events and recommend auditor actions based on two scenarios for Benkum Ltd.

Atiko Audit firm is the external auditor of Benkum Ltd, a company operating in the oil and gas sector. Benkum Ltd is listed on the Ghana Stock Exchange. On completing the audit for the year ended 31 December 2022, the following issues were brought to the attention of the senior partner:

  1. On 25 February 2023, Benkum agreed with the workers’ union to increase the pay of all its employees by 10%, backdated to 1 July 2022. No provision for this has been made in the financial statements.
  2. One of the company’s oil tankers shipwrecked at Cape Three Points on the western side of Ghana. There is a risk of serious oil spillage which could have a significant effect on the future of the company. Further information will not be available until after the auditor’s report has been signed.

Required:
i) State TWO (2) types of the event identified by ISA 560: Subsequent Events in relation to the scenario above. (2 marks)
ii) What further action should Atiko Audit firm take concerning each of the above issues? (8 marks)

 

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  • 5 Marks

AAA – Nov 2023 – L3 – Q5b – Audit Evidence, Evaluation and Review

Describe the auditor’s responsibility for subsequent events occurring between specific periods in the audit process.

b) In conducting an audit, audit procedures must be planned and performed so as to consider all significant transactions occurring after the reporting period. This means that the audit work does not stop with events only up to the reporting period. There are two key dates after the reporting period: the date of the audit report and the date that the financial statements are issued.

Required: Describe the auditor’s responsibility for subsequent events occurring between:

i) The year-end date and the date the auditor’s report is signed; and (2 marks)

ii) The date the auditor’s report is signed and the date the financial statements are issued. (3 marks)

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  • 5 Marks

AAA – April 2022 – L3 – Q5b(ii) – Professional responsibility and liability

Explain the auditor's responsibility in relation to a reorganization that occurred after the year-end.

Asogli recently announced its plans to reorganize its business operations. This will involve closing some units, retraining some existing staff, and disposing of some surplus assets. These plans were agreed upon at a board meeting in October and announced to their shareholders on 29 October 2020. Asogli is proposing to make a reorganization provision in the financial statements.

Required: Assume that the reorganization occurred on 15 November 2020, what will be the responsibility of the auditor in line with auditing standards? (5 marks)

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  • 4 Marks

AAA – April 2022 – L3 – Q3b – Evaluation and review

Explain the additional audit work required for a fine imposed by the Environmental Agency after the audit report was signed.

Assume that the date is now 10 December 2020, the financial statements and the audit report have just been signed, and the Annual General Meeting is to take place on 10 January 2021. The Environmental Agency has issued a report on 28 December 2020 stating that Aseda is in breach of environmental legislation and a fine of GH¢800,000 will now be levied on the company. The amount is material to the financial statements.

Required: Explain the additional audit work the auditor should carry out in respect of this fine. (4 marks)

 

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  • 12 Marks

AAA – April 2022 – L3 – Q3a Evaluation and review

Explain the reporting implications and auditors' responsibilities for events after the reporting period for Aseda Manufacturer Ltd.

Aseda Manufacturer Ltd (Aseda) is one of the established businesses in the manufacturing sector. The company has received different awards over the past decade. Aseda’s year-end was 30 September 2020. The audit of Aseda is nearly complete, and the financial statements and the audit report are due to be signed in a few days. However, the following additional information on two material events has just been presented to the auditor on 3 December 2020.

  1. Event 1:
    This event occurred on 10 November 2020. Production at the Aluta factory was halted for one day when a truck carrying dye used in colouring the fabric on mattresses reversed into a metal pylon, crashing the vehicle and causing dye to spread across the factory premises and into a local river. The Environmental Protection Agency (EPA) of Ghana is currently considering whether the release of the dye was in breach of environmental legislation. The company’s insurers have not yet commented on the event.
  2. Event 2:
    This event occurred on 19 October 2020. The springs in a new type of mattress have been found to be defective, making the mattress unsafe for use. There have been no sales of this mattress as it was due to be marketed in the next few weeks. The company’s insurers estimate that inventory worth GH¢600,000 has been affected. The insurers also estimate that the mattresses are now only worth GH¢100,000. No claim can be made against the supplier of springs as this company is in liquidation with no prospect of any amounts being paid to third parties. The insurers will not pay Aseda for the fall in value of the inventory as the company was underinsured. All of this inventory was in the finished goods store at the end of the year and no movements of inventory have been recorded post year-end.

Required: a) For each of the two events above: i) Explain the reporting implication of the issues in accordance with IAS 10: Events after the Reporting Period. (4 marks)
ii) Explain the auditors’ responsibility and the audit procedures that should be carried out in accordance with ISA 560: Subsequent Events. (12 marks)

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  • 7 Marks

AA – Nov 2015 – L2 – Q2c – Audit and Assurance Risk Environment, Completion Procedures and Reporting

This question covers auditors’ responsibilities for subsequent events and going concern assessments, as well as internal control reporting.

c) Technolab has an internal audit department. The partner in charge of the audit is seeking clarification regarding how any deficiencies in internal control should be identified and communicated to management. The partner feels the report produced by the external auditors may duplicate the report produced by the internal audit function.

Required:
Explain how the purpose and content of an internal auditor’s report on internal control deficiencies differ from one prepared by the external auditor.
(7 marks)

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  • 14 Marks

AA – Nov 2015 – L2 – Q2a and b – Audit and Assurance Risk Environment, Completion Procedures and Reporting

This question covers auditors’ responsibilities for subsequent events and going concern assessments, as well as internal control reporting.

You are an audit senior for an audit firm and are currently working on the audit of Technolab, a company that produces sophisticated electronic laboratory equipment. The company imports a high proportion of the components it uses from China. The equipment is used by some laboratories dealing with hazardous chemicals.

As the audit draws to a close, the partner in charge has asked you to ensure that all procedures relating to subsequent events and going concern are properly performed. You are to consider the audit work to be performed in relation to ISA 560 Subsequent Events and ISA 570 Going Concern.

Required:

a) Describe the auditor’s responsibilities for subsequent events occurring between:
i. The year-end date and the date the auditor’s report is signed.
ii. The date the auditor’s report is signed and the date the financial statements are issued.
(6 marks)

b) Going concern relates to the judgment that an entity will continue to trade for the foreseeable future.
i. Explain the responsibilities of directors and auditors in relation to going concern.
(3 marks)
ii. Explain the audit procedures that the auditor could carry out when conducting the going concern review of Technolab.
(4 marks)

c) Technolab has an internal audit department. The partner in charge of the audit is seeking clarification regarding how any deficiencies in internal control should be identified and communicated to management. The partner feels the report produced by the external auditors may duplicate the report produced by the internal audit function.

Required:
Explain how the purpose and content of an internal auditor’s report on internal control deficiencies differ from one prepared by the external auditor.
(7 marks)

Total: 20 marks

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  • 10 Marks

AA – April 2022 – L2 – Q4a – Completion Procedures and Reporting

Discusses the need to amend financial statements based on subsequent events and the auditor's responsibility in the post-year-end period.

a) Aseye Ltd is in the manufacturing sector and its year-end is 30 September 2019. The final audit is nearly complete and it is proposed that the financial statements and audit report will be signed on 10 November 2019. Revenue for the year is GH¢80 million and profit before taxation is GH¢9 million. Subsequent to the year-end, a lawsuit was filed against Aseye Ltd. Below are the details of the lawsuit:

A key supplier of Aseye Ltd is suing the company for breach of contract. The lawsuit was filed on 10 October 2019, and the sum claimed by the supplier is GH¢2 million. This has been disclosed as a contingent liability in the notes to the financial statements; however, correspondence has just been received from the supplier indicating that they are willing to settle the case for a payment by Aseye Ltd of GH¢1 million. It is likely that the company will agree to this.

Required:
i) For the event above:

  • Discuss whether the financial statements require amendment. (2 marks)
  • Describe audit procedures that should be performed to enable the Auditor to draw a conclusion on the amendment. (2 marks)

ii) Describe the auditor’s responsibility for subsequent events occurring between:

  • The year-end date and the date the auditor’s report is signed. (3 marks)
  • The date the auditor’s report is signed and the date the financial statements are issued. (3 marks)

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  • 10 Marks

AA – Mar 2024 – L2 – Q5a – Completion Procedures and Reporting

Identify subsequent events and recommend auditor actions based on two scenarios for Benkum Ltd.

Atiko Audit firm is the external auditor of Benkum Ltd, a company operating in the oil and gas sector. Benkum Ltd is listed on the Ghana Stock Exchange. On completing the audit for the year ended 31 December 2022, the following issues were brought to the attention of the senior partner:

  1. On 25 February 2023, Benkum agreed with the workers’ union to increase the pay of all its employees by 10%, backdated to 1 July 2022. No provision for this has been made in the financial statements.
  2. One of the company’s oil tankers shipwrecked at Cape Three Points on the western side of Ghana. There is a risk of serious oil spillage which could have a significant effect on the future of the company. Further information will not be available until after the auditor’s report has been signed.

Required:
i) State TWO (2) types of the event identified by ISA 560: Subsequent Events in relation to the scenario above. (2 marks)
ii) What further action should Atiko Audit firm take concerning each of the above issues? (8 marks)

 

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  • 5 Marks

AAA – Nov 2023 – L3 – Q5b – Audit Evidence, Evaluation and Review

Describe the auditor’s responsibility for subsequent events occurring between specific periods in the audit process.

b) In conducting an audit, audit procedures must be planned and performed so as to consider all significant transactions occurring after the reporting period. This means that the audit work does not stop with events only up to the reporting period. There are two key dates after the reporting period: the date of the audit report and the date that the financial statements are issued.

Required: Describe the auditor’s responsibility for subsequent events occurring between:

i) The year-end date and the date the auditor’s report is signed; and (2 marks)

ii) The date the auditor’s report is signed and the date the financial statements are issued. (3 marks)

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  • 5 Marks

AAA – April 2022 – L3 – Q5b(ii) – Professional responsibility and liability

Explain the auditor's responsibility in relation to a reorganization that occurred after the year-end.

Asogli recently announced its plans to reorganize its business operations. This will involve closing some units, retraining some existing staff, and disposing of some surplus assets. These plans were agreed upon at a board meeting in October and announced to their shareholders on 29 October 2020. Asogli is proposing to make a reorganization provision in the financial statements.

Required: Assume that the reorganization occurred on 15 November 2020, what will be the responsibility of the auditor in line with auditing standards? (5 marks)

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  • 4 Marks

AAA – April 2022 – L3 – Q3b – Evaluation and review

Explain the additional audit work required for a fine imposed by the Environmental Agency after the audit report was signed.

Assume that the date is now 10 December 2020, the financial statements and the audit report have just been signed, and the Annual General Meeting is to take place on 10 January 2021. The Environmental Agency has issued a report on 28 December 2020 stating that Aseda is in breach of environmental legislation and a fine of GH¢800,000 will now be levied on the company. The amount is material to the financial statements.

Required: Explain the additional audit work the auditor should carry out in respect of this fine. (4 marks)

 

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  • 12 Marks

AAA – April 2022 – L3 – Q3a Evaluation and review

Explain the reporting implications and auditors' responsibilities for events after the reporting period for Aseda Manufacturer Ltd.

Aseda Manufacturer Ltd (Aseda) is one of the established businesses in the manufacturing sector. The company has received different awards over the past decade. Aseda’s year-end was 30 September 2020. The audit of Aseda is nearly complete, and the financial statements and the audit report are due to be signed in a few days. However, the following additional information on two material events has just been presented to the auditor on 3 December 2020.

  1. Event 1:
    This event occurred on 10 November 2020. Production at the Aluta factory was halted for one day when a truck carrying dye used in colouring the fabric on mattresses reversed into a metal pylon, crashing the vehicle and causing dye to spread across the factory premises and into a local river. The Environmental Protection Agency (EPA) of Ghana is currently considering whether the release of the dye was in breach of environmental legislation. The company’s insurers have not yet commented on the event.
  2. Event 2:
    This event occurred on 19 October 2020. The springs in a new type of mattress have been found to be defective, making the mattress unsafe for use. There have been no sales of this mattress as it was due to be marketed in the next few weeks. The company’s insurers estimate that inventory worth GH¢600,000 has been affected. The insurers also estimate that the mattresses are now only worth GH¢100,000. No claim can be made against the supplier of springs as this company is in liquidation with no prospect of any amounts being paid to third parties. The insurers will not pay Aseda for the fall in value of the inventory as the company was underinsured. All of this inventory was in the finished goods store at the end of the year and no movements of inventory have been recorded post year-end.

Required: a) For each of the two events above: i) Explain the reporting implication of the issues in accordance with IAS 10: Events after the Reporting Period. (4 marks)
ii) Explain the auditors’ responsibility and the audit procedures that should be carried out in accordance with ISA 560: Subsequent Events. (12 marks)

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