ACCA

AUDIT AND ASSURANCE

(INTERNATIONAL)

REVISION ESSENTIALS HANDBOOK

For Examinations to June 2017

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 CONTENTS

CONTENTS
Syllabus (iii)
Approach to examining (iv)
Core topics (v)
Audit and other assurance engagements 0101
External audit 0201
Corporate governance 0301
Professional codes of ethics and conduct 0401
Auditor appointment 0501
Documentation 0601
Audit planning 0701
Understanding the entity 0801
Internal control 0901
Audit materiality 1001
Fraud, Law and Regulations 1101
Tests of control 1201
Communication on internal control 1301
Service organisations 1401
Audit evidence 1501
Analytical procedures 1601
Accounting estimates 1701
Using the work of an expert 1801

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 CONTENTS

Audit sampling 1901

Written representations 2001
Computer-assisted audit techniques 2101
Non-current assets 2201
Inventory 2301
External confirmations, receivables and sales 2401
Share capital, reserves and directors remuneration 2501
Loans, bank and cash 2601
Liabilities, provisions and contingencies 2701
Small business and not-for-profit organisations 2801
Audit finalisation 2901
The auditors report on financial statements 3001
Going concern 3101
Internal audit 3201
Using the work of internal auditors 3301
Additional reading 3401
Examiners report September/December 2015 3501
Analysis of specimen examination 3601
Examination technique 3701
Frequently asked questions 3801
CAUTION: These notes offer guidance on key issues.
Reliance on these alone is insufficient to pass the examination

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 SYLLABUS

Aim Identify and describe the work and evidence obtained

by the auditor and others required to meet the objectives
To develop knowledge and understanding of the process of
of audit engagements and the application of the
carrying out the assurance engagement and its application in
International Standards on Auditing.
the context of the professional regulatory framework.
Explain how the consideration of subsequent events and
Main capabilities
the going concern principle can inform the conclusions
On successful completion of this paper, candidates should be from audit work are reflected in different types of audit
able to: report, written representations and the final review and
report.
Explain the concept of audit and assurance and the
functions of audit, corporate governance, including Position within syllabus
ethics and professional conduct, describing the scope
and distinguishing between the functions of internal and
external audit. PA (P1) AAA (P7)

Demonstrate how the auditor obtains and accepts audit

engagements, obtains an understanding of the entity and
its environment, assesses the risk of material
misstatement (whether arising from fraud or other CL (F4) FR (F7) AA (F8)
irregularities) and plans an audit of financial statements.
Describe and evaluate internal controls, techniques and
audit tests, including IT systems to identify and
communicate control risks and their potential
consequences, making appropriate recommendations.

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 APPROACH TO EXAMINING

Approach to examining the syllabus Additional information

The syllabus is assessed by a three-hour 15 minutes paper- Candidates need to be aware that questions will only be set
based or computed-based examinations (CBE) consisting of on new regulations issued prior to the 31st August 2015 for
sections A and B.. All questions are compulsory. examinations in the period September 2016 to June 2017.
Section A
Three 10-mark case-based questions.
Each case will have five objective test (OT) questions
from across the syllabus worth 2 marks each.
Section B
One 30-mark and two 20-mark constructed response
(long) questions.
Will predominately examine one or more aspects of:
planning and risk assessment
internal control
audit evidence,
although topics from other syllabus areas may also be
included.

Note that from September 2016 there is no distinction

between 15 minutes reading time and three hours writing
time. Candidates will be allowed to write in their answer
booklet as soon as the exam starts.

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 CORE TOPICS

CORE TOPICS Tick when completed Tick when completed

Audit and Other Assurance Engagements Accounting Estimates

External Audit Using the Work of an Expert
Corporate Governance Audit Sampling
Professional Codes of Ethics and Conduct Written Representations
Auditor Appointment Computer-Assisted Audit Techniques
Documentation Non-current Assets
Audit Planning Inventory
Understanding the Entity External Confirmations, Receivables and Sales
Internal Control Share Capital, Reserves and
Directors Remuneration
Audit Materiality
Loans, Bank and Cash
Fraud, Law and Regulations
Liabilities, Provisions and Contingencies
Tests of Control
Small Business and Not-for-Profit Organisations
Communication on Internal Control
Audit Finalisation
Service Organisations
The Auditors Report on Financial Statements
Audit Evidence
Going Concern
Analytical Procedures
Internal Audit/Using the Work of IA

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 AUDIT EVIDENCE

1 AUDIT EVIDENCE 2 SUFFICIENT

1.1 Basic principles 2.1 Factors to consider

Sufficient appropriate audit evidence should be obtained, Nature and level of audit risk.
from which reasonable conclusions can be drawn, as a basis Nature of internal control.
for the audit opinion. Reliance on effective controls.
Auditors (cumulative) knowledge and experience.
Sufficiency measures quantity of evidence required. Materiality of items.
Audit findings (e.g. fraud or error).
Appropriateness measures quality (relates to relevance Source and reliability of information (i.e.
and reliability). persuasiveness).
Audit evidence supports the auditors opinion. 3 APPROPRIATE
1.2 Sources 3.1 Interrelationship
Internal or external. Appropriate = Relevant + Reliable
Oral or written.
Direct or indirect. 3.2 Relevance
Ideas list Supports financial statement assertions relating to:
Accounting systems recognition;
Documentation measurement; and
Tangible assets presentation/disclosure.
Management and employees
Customers and suppliers
Other third parties
Analytical procedures

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Transactions and events (COCOA)
Completeness all necessary transactions and events
have been recorded.
Occurrence recorded transactions/events have
occurred and relate to the entity.
Classificationtransactions and events have been
correctly categorised.
Cut-off (O) recorded in the correct period.
Accuracy transactions and events have been recorded
appropriately.
Balances (CARE)
Completeness all relevant assets, liabilities and
equity interests been recorded.
Valuation and allocation (A) assets, liabilities, and
equity interests are at appropriate amounts including
valuation or allocation adjustments.
Rights and obligations assets are controlled,
liabilities are obligations.
Existence assets, liabilities, and equity interests exist.
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AUDIT EVIDENCE
Presentation and disclosure (COCOA)
Completeness all necessary disclosures are included.
Occurrence and rights and obligations (O)
disclosed events and transactions occurred and relate to
the entity.
Classification and understandability financial
information is appropriately presented and disclosures
are clearly expressed.
Accuracy and valuation financial and other
information is disclosed fairly at appropriate amounts.
3.3 Reliability
Accuracy and completeness are key assertions.
External (independent) usually more reliable than entity
(internal) sources.
Documentary/written more reliable than verbal/oral.
Auditor obtained more reliable than indirectly obtained.
Information more reliable when related internal controls
are effective.
Original documents more reliable than copies (hard or
electronic).
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3.4 Direction of testing
Overstatement v understatement:
Risk of overstatement (e.g. existence of assets)
test from statements source.
Risk of understatement (e.g. non-recording of
obligations) test from source statements.
Test Dr entries for overstatement (e.g. assets, expenses)
and Cr entries for understatement (e.g. liabilities,
income).
4 OBTAINING AUDIT EVIDENCE
4.1 Where evidence is obtained from
UNDERSTANDING TESTS OF SUBSTANTIVE
THE ENTITY CONTROL PROCEDURES
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AUDIT EVIDENCE
4.2 Procedures
Inspection (documents, records, physical assets, etc).
Observation (of procedures and processes).
Inquiry (of other parties both internal and external).
Confirmation (from other parties of inquiries made).
Recalculation (to confirm mathematical accuracy).
Reperformance (to confirmed procedures performed).
Analytical procedures (to establish relationships
between data sets and develop expectations)
4.3 Examination skills
Financial statement assertions:
Relevant audit evidence.
Direction of testing and assertions:
Flow of accounting information;
Assertion objectives.
T account:
Accounting entries;
Assertion objectives.
Procedures (as above).
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 AUDIT EVIDENCE

5 SUBSTANTIVE PROCEDURES Tests of detail on balances and disclosures:

5.1 Aim Tests primarily on assertions related to statement
of financial position (assets/liabilities/equity).
Performed to detect material misstatements at the
assertion level and include: Tests to ensure disclosure requirements meet.
tests of detail of transactions; Substantive analytical procedures:
tests of detail on account balances;
Usually applicable to larger volumes of
tests of detail on disclosures; and
transactions that tend to be predictable over time.
substantive analytical procedures.
Timing
5.2 Nature, timing and extent
Normally carried out during the final audit.
Nature
May be carried out at an interim stage or year end:
Tests of detail on transactions:
Usually to be time efficient (tight reporting
Obtain audit evidence regarding transaction
deadlines);
assertions.
Need to ensure any gap period (to year end) for
Based on risk of over or understatement, trace a
transaction tests covered at the final audit;
transaction through a system.
Need to roll forward and reconcile balances at
Primarily for the statement of profit and loss and
time of testing to year-end balances.
other comprehensive income.
Audit evidence from prior year substantive tests cannot
be relied on for the current year.

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 AUDIT EVIDENCE

Extent
Relate to audit risk model (detection risk).
Higher risk, higher sample sizes.
Lower risk, minimum sample sizes.
All (performance) material items must be tested.
5.3 Hybrid approach
Dual purpose testing (control and transaction).
For a given cycle, controls and transactions tested for
the same sample items.

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 INVENTORY

1 INVENTORY 2.2 Audit considerations

1.1 Types of inventory Completeness
Production: Inventory count and reconciliation to book records.
Cut-off.
Raw materials;
Perpetual inventory system.
Work-in-progress;
Finished goods. Allocation and valuation
Retail goods for resale. Cost method in accordance with IAS 2.
Lower of cost and net realisable value.
1.2 Materiality
Rights (control)
Pervasive to financial statements.
Very material for most entities. On-site third party inventory not included.
High risk and (often) complex audit area. Client inventory held by third parties verified.
2 RISKS Existence
2.1 General risks Physical count observation.
Under and overstatement. 2.3 Sources of evidence
Shrinkage.
Systems perpetual inventory.
Management manipulation of quantities and value.
Documents inventory records, purchase/sales invoices.
Lack of control over quantities.
Tangible assets inventory elements.
Valuation (IAS 2) and obsolescence.
Management/employees procurement, stores.
Inaccurate recording and cut-off.
Customers/suppliers complaints and returns (NRV).
Third party inventory.
Third parties bank, outsourcing agents.
Analytical procedures inventory turnover, GP%.

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 INVENTORY

3 ATTENDANCE AT PHYSICAL INVENTORY 3.3 Perpetual (continuous count) inventory system

COUNT (ISA 501)
Aims to rely on year-end book quantities and values.
3.1 Objectives
Usually supported by integrated electronic systems.
Observe and evaluate that managements count
Inventory is counted on a regular basis.
instructions are carried out.
All inventory counted at least once a year.
Ascertain existence and evaluate condition of inventory.
High risk/value items more often.
Obtain audit evidence on the reliability of
managements count procedures. A check on accuracy of book records (quantity and
value).
3.2 Types of inventory counting
Material differences between book and physical must
be investigated and corrected on each count.
Auditors should attend at least one physical count.
Recorded movements throughout year must be audited:
Sales and purchase to/from records;
Confirms occurrence and measurement assertions.

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 INVENTORY

3.4 Procedures Attendance

Briefing meeting.
Walk-about to ensure pre-count procedures.
Observe count procedures.
Test counts.
Discussions with management on errors found.
Cut-off information.
Count sheet control.
Walk about to ensure completeness.
Planning Follow-up (final audit)
To identify risks of material misstatement and understand Clear outstanding matters from count.
nature of inventory internal control. Agree final detail complete and accurate from original
Review prior year inventory count working papers. count sheets.
Obtain copy of the count instructions. Discuss any changes made (to count sheets and to
Agree date, time and location. inventory records) with management.
Discuss changes that could affect the audit approach.
Review adequacy of clients instructions. Re-perform calculations.
Consider arrangements for any expert. Agree valuation in accordance with IAS 2.
Preparation (e.g. segregation of third party inventory).
Identification of slow moving and obsolete goods. Obsolete, slow moving, NRV review.
Control over issue and return of count sheets. Written representations on completeness and accuracy.
Staff and management count teams.
Method of counting.
Cut-off arrangements (i.e. limiting movements).

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 INVENTORY

3.5 Inventory held by third parties 4.3 Audit procedures

If material, need physical count observed by auditor. All cut-off tests must be co-ordinated around the cut-off
Alternative procedures if access/count not possible. date (reporting date).
If not material, confirmation.
Cut-off should also be tested where pre-year end testing
Assessment of client controls and reconciliation of
made (e.g. receivables confirmation before year end).
inventory movements.
5 VALUATION
4 CUT-OFF
5.1 IAS 2
4.1 Importance
Transactions are recognised in the period they occur. Valued at the lower of cost and net realisable value (NRV).
May be window-dressed to manipulate profits.
Cost includes:
4.2 Relationships
original purchase price;
Purchases and payables non--recoverable taxes;
Goods received, inventory, purchase invoices, payables transport, handling, etc;
must all correspond in the appropriate period. direct production costs (including overheads); and
other costs that are incurred in bringing the
Cash payments, cash book and payables must also inventories to their present location and condition.
correspond.
NRV is the estimated selling price less the costs to sell
Sales and receivables and the estimated costs of completion.
Goods dispatched, inventory, sales invoices, receivables
must all correspond in the appropriate period.
Cash receipts from customers, cash book and
receivables must also correspond.

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 INVENTORY

5.2 Cost measurement methods and formula Actual cost

Any cost measurement method may be used as long as Specific cost, FIFO or weighted average cost.
it approximates to actual cost.
Same cost formula should be used for similar items.
Standard cost
For inventories with a different nature or use, different
Common industrial use for cost measure and control. cost formulas may be justified.
Controls over establishing, maintaining and updating Audit evidence:
standards should be understood and assessed.
material costs to suppliers invoices;
Postings to variance accounts should be part of systems labour to payroll and time summaries;
audit. basis of unit cost calculations for allocating
overheads.
Make up of standard cost must be audited.
Review suitability of costing and stage of completion
Analyse balance on variance accounts (may need to
for work in progress.
adjust standard to actual.
5.3 Net realisable value (NRV)
Retail method
Indicators
Suitable for a large number of high turnover items that
have similar margins. Obsolescence, damage, slow-moving, etc.
New competitor products.
Inventory count valuation is based on selling price.
Decrease in selling price or demand.
Cost is selling price less standard gross profit %. Economic decline.
Rising costs that cannot be passed on to customers.
Auditor should derive best estimate of gross profit. Rising costs to complete (after year end).
May also involve checking purchase invoices.

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 INVENTORY

Audit procedures 5.4 Allowances

Understand nature of business and activity during year Accounting estimate.
to assess NRV risks.
Simple or complex.
Review inventory observation working papers for NRV
Models used must be regularly reviewed by
indicators.
management.
Discuss with management procedures undertaken to
Understand managements process to estimate
access NRV.
allowance.
Review management reports, sales reports and board
Derive auditors estimate.
minutes for evidence of NRV risks.
Review subsequent events to confirm estimate made.
Analytical review to assess inventory turnover to
identify at risk items.
Slow moving inventory analysis.
Review prior year NRV inventory movements to
provide comparison for likely final selling prices.
Use of CAATS where appropriate:
Inventory count transfers.
Application of costs.
Calculation of values.
Inventory ageing.
Analysing after-date sales.
Predicting NRV.

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 AUDIT FINALISATION

1 AUDIT COMPLETION REVIEW Principal review techniques

Part of quality control process. Discussion between reviewers and others involved in
the audit.
Helps to ensure:
Review of documentation.
all work was carried out according to audit plan;
all material and contentious issues dealt with; Checklists.
the audit report is consistent with work performed;
Analytical procedures.
audit work supports the audit opinion; and
ethical matters have been considered for audit re- Above provide reasonable assurance that audit has been
acceptance. conducted in accordance with:
Provides opportunity to assess how audits are auditing standards;
conducted. other regulatory requirements; and
the firms own standards.
1.1 Overall review of financial statements
1.2 Types of review
To assess whether:
Day-to-day review and discussion of the work done:
evidence obtained provides a reasonable basis for
the audit opinion; senior audit members (on assistants work); and
audit managers (on work of seniors).
information presented in the financial statements
meets statutory requirements; Engagement partners review prior to the signing of the
audit report.
appropriate accounting policies are properly
disclosed and consistently applied; and Independent second partner review for high risk clients
(hot review before signing audit report).
financial statements are consistent with auditors
knowledge and results of audit procedures.

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 AUDIT FINALISATION

1.3 Documentation 1.6 Other tools

All critical matters, particularly matters of judgement:
uncorrected misstatements;
going concern;
provisions and contingencies;
subsequent events;
compliance with reporting framework;
written representations; and
communications to those charged with governance.
1.4 Completion checklists
Checks that all relevant audit procedures have been
completed before the audit opinion is signed.
Normally includes an overall conclusion that
paraphrases the audit opinion.
1.5 Analytical procedures
Mandatory to corroborate (or not), audit conclusions
on individual elements of the financial statements.
Use updated (for discovered errors) planning analytical
review and ratio analysis.
Ratio trend analysis (3 years minimum).
Refine expectations made at planning stage (as more
up-to-date information is available).
Points for partner
A completion summary:
Significant points and issues from the audit;
How they have been dealt with;
Matters for final discussion with the client.
All matters that the audit partner needs to be aware of.
Enables a final decision to be taken on:
the adequacy of action taken; or
what still needs to done.
Disclosure checklists
Review the final accounts for full and accurate IFRS
and regulatory disclosure and presentation.
2 UNCORRECTED MISSTATEMENTS
2.1 Misstatements
Difference between a reported item and what it should be in
accordance with the financial reporting framework.
Can arise from error or fraud.
Uncorrected misstatements accumulated and
considered (collectively) not to be material.

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 AUDIT FINALISATION

Three categories 3 OTHER INFORMATION (ISA 720)

Factual there are no doubts. Other information presented with audited financial
Judgemental differences of opinion about estimates or statements that could undermine their credibility and the
application of accounting policies. audit report thereon.
Projected extrapolated best estimate of misstatements 3.1 Procedures
in populations.
Obtain and read the other information to identify any
2.2 Essential procedures material inconsistencies or misstatement of facts.
Discuss all misstatements with management. Inconsistency
If the aggregate of uncorrected misstatements is Information contained in the financial statements is
material, consider: contradicted by the other information.
further adjustments made by management; If in financial statements and management refuses to
effect on critical points; and change qualify audit opinion.
extending procedures to reduce projected errors.
If in other information and management refuses to
2.3 Evaluating misstatements change:
Apply planning materiality levels as basis for discuss with those charged with governance;
evaluation. other matters paragraph;
Qualitative evaluation if misstatement: withhold auditors report;
consider withdrawal from engagement after
may be due to fraud; obtaining legal advice.
affects regulatory requirements;
may affect future periods;
affect key ratios, operations or cash flows;

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 AUDIT FINALISATION

Misstatement of fact Event

Discuss with management.

Ask management to consult with an external expert. End of Financial statements
Raise issue with those charged with governance. reporting approved by
If no change made, seek legal advice. period members.

4 SUBSEQUENT EVENTS (ISA 560) Two types

4.1 Events after the reporting period Adjusting Non-adjusting

Provides further Indicative of conditions that

Events (favourable and unfavourable) occurring between the evidence of conditions arose after the end of the
end of the reporting period and the date the financial existing at the end of reporting period.
statements are authorised for issue. IAS 10 the reporting period.
Disclose if material:
Events occurring between the date of the financial statements Adjust if material. (a) Nature of event;
and the date of the audit report and facts that become known (b) Estimate of financial effect
after the date of the audit report. ISA 560 (or state that estimate
cannot be made.

Adjusting events examples

Year-end debt deemed irrecoverable after the year end.
Litigation initiated after the year end that relates to an
event that occurred before the year end.

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 AUDIT FINALISATION

Non-adjusting events examples After date of audit report before financial statements issued
Changes in fair values of assets (e.g. material damage to No active audit role would only consider if aware
non-current assets that existed at the year end). (e.g. informed by management as required by letter of
engagement).
Legal claims that relate to post-year end events.
Auditors should take action appropriate in the
Issue of share capital.
circumstances:
4.2 Audit procedures and effect on report If financial statements
Understand managements systems for identifying
adjusting and non-adjusting subsequent events.
Amended Not amended
Before date of audit report (auditor thinks they should be)
Withdraw old audit report. Discuss with those charged with
Active responsibility. governance.
Extend audit procedures,
Enquire of management, those charged with governance including subsequent events If no adjustment, withdraw old
and other relevant third parties. review, to new date. audit report.
Issue new report when financial Issue new report expressing a
Review board minutes/correspondence.
statements approved. qualified or adverse opinion.
Review of after-date cash books, transactions, journals
and other records for material/unusual items. If amended financial statements issued, without new
report, seek legal advice how to prevent reliance on
Review of budgets, cash flow forecasts and
report.
management reports.
If no change made for material items, qualified or
disagreement audit opinion.

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 AUDIT FINALISATION

After financial statements issued

If auditor becomes aware of a fact which existed at the
date of the report which, if known at that date, may
have caused a modified report:
Take appropriate action after seeking legal advice.
If financial statements

Amended Not amended

(auditor thinks they should be)
Withdraw old audit report. Discuss issues with those charged
with governance.
Extend audit procedures,
including further subsequent Seek legal advice on how to inform
events review, up to the date of the those who have received the old
new audit report. financial statements that they
cannot rely on the audit report.
Issue new report (when financial
statements approved with an
emphasis of matter or other matter
paragraph to explain reasons for
amendments.
Review management procedures
to ensure those who received the
old financial statements will
receive the new and are aware of
the circumstances for the change.

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1 RESPONSIBILITIES
1.1 Going concern basis
. . . entity will continue in
operation for the foreseeable
future
. . . assume neither intention nor
necessity (eg no realistic
alternative) to liquidate or cease
trading
If assumption justified
Assets will be realised and
liabilities discharged in normal
course of business
1.2 Managements responsibility
To assess ability to continue as a going concern.
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GOING CONCERN
1.3 Auditors responsibilities (ISA 570 Going Concern)
Generally a period of at least,
but not limited to, 12 months
from the end of the reporting
period
Management must assess
entitys ability to continue as a
going concern
If unjustified
Amounts recorded in respect of
assets may not be realised
Amounts and maturity dates of
liabilities may need adjustment.
2 PLANNING
2.1 Risk assessment
3101
Obtain sufficient appropriate audit evidence regarding
the managements use of the going concern basis and
conclude on the appropriateness of the use of the going
concern basis:
Time period used by management;
Assumptions used;
All relevant information considered;
Plan for future actions;
Plan is feasible.
Conclude, based on audit evidence obtained, whether a
material uncertainty over going concern exists.
Determine implications for the audit report.
Understand and assess the process used by management
to assess going concern and discuss with those charged
with governance.
If no formal process, discuss with management
and make appropriate enquiries.
Identify events/conditions that may cast significant
doubt on ability to continue as a going concern.
 GOING CONCERN

2.2 Indicators of significant doubt Emergence of highly successful competitor.

Financial indicators Fundamental change to which the entity cannot
adequately respond.
Net liability/net current liability position.
Other indicators
Withdrawal of financial support.
Negative operating cash flows. Pending legal proceedings that may bankrupt the entity.
Changes in legislation or government policy.
Adverse key financial ratios.
Uninsured/underinsured catastrophes.
Substantial operating losses. Non-compliance with capital, statutory, regulatory
Significant deterioration in value of assets. requirements.
Arrears or discontinuance of dividends. 2.3 Mitigating factors
Inability to pay creditors on due dates.
Managements plans:
Difficulty in complying with terms of loan agreements.
Disposal of assets;
Inability to obtain essential finance.
Debt rescheduling;
Overreliance on short-term financing of long-term assets. Obtaining capital;
Change from credit to cash-on-delivery transactions Continued support.
with suppliers.
3 AUDIT EVIDENCE
Operational indicators
Keep alert for events and conditions that affect going
Intention to cease operations. concern. If identified:
Loss of key management without replacement. perform additional procedures; and
Loss of a major market, license, principal supplier, key reassess audit risk.
customer (no appropriate alternatives).
Labour difficulties or shortages of key supplies.

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 GOING CONCERN

3.1 Sources of information Existence of litigation and claims and the

reasonableness of managements assessments.
Clients system for timely identification of warnings of
risks/uncertainties. Third party continued support.
Budgets, forecast information. Order books and subsequent events review.
Obligations, undertakings, guarantees with lenders, Existence, terms and adequacy of borrowing facilities.
suppliers.
Obtaining and reviewing reports of regulatory actions.
Bank borrowing facilities and suppliers credit.
Adequacy of any planned disposals of assets.
Managements plans for future action.
Specific written representation plans that might have a
3.2 Specific procedures significant effect on solvency in foreseeable future.
Analyse managements assessment: Conclude on the going concern basis.
assessment process; 3.3 Cash flows
assumptions used;
Considerations
plan for future action; and
feasible in the circumstances. Control systems that generate cash flow detail.
Appropriateness of underlying assumptions.
Analysing (including sensitivity analysis) cash flow,
Additional facts/information since forecast prepared.
profit and other relevant forecasts.
Comparison to historic budgets, forecasts, etc
Analysing entitys latest available interim statements. Comparison to current period with results achieved to
date.
Breaches of debentures and loan agreements.
Financing difficulties noted in minutes of meetings.

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3.4 Beyond the assessment period
Inquire of management (and obtain a written
representation) if indicators of significant doubt beyond
the period of assessment.
4 CONCLUSIONS AND REPORTING
4.1 Basic principle
The auditor should judge whether material uncertainty
about the going concern basis exists.
Statements about responsibilities related to going
concern are included in the auditors report.
4.2 Requirements
Going concern is appropriate and no uncertainty
Statement that the financial statements have been
prepared on the going concern basis.
No reference made in the auditors report unless it
constitutes a Key Audit Matter (e.g. uncertainty is
insufficient to warrant a Going Concern section but
should not be completely ignored).
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GOING CONCERN
Going concern is appropriate, but a material uncertainty exists
Adequate description and disclosure of:
events or conditions giving rise to the doubt;
managements plans to alleviate the uncertainty.
Statement that:
there is material uncertainty;
entity may be unable to realise assets; and
discharge liabilities in normal course of business.
If adequate disclosure:
express an unmodified opinion; plus
Material Uncertainty Related to Going Concern
section.
Material Uncertainty Related to Going Concern
We draw your attention to Note X in the financial statements
[summary of matter]. Our opinion is not modified in respect
of this matter.
If clearly inadequate or no disclosure made express an
adverse opinion.
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 GOING CONCERN

Adverse Opinion We conducted our audit in accordance with .. [standard

wording]. We believe that the audit evidence we have
We have audited (no changes from standard wording).
obtained is sufficient and appropriate to provide a basis for
In our opinion, because of the omission of the information our qualified opinion.
mentioned in the Basis for Adverse Opinion section of our
Going concern basis is inappropriate
report, the financial statements do not give a true and fair
view ... Adverse audit opinion.
Basis for Adverse Opinion Management is unwilling or unable to assess
[Description of events that indicate material uncertainly.] Qualified or disclaimer of opinion as insufficient
appropriate audit evidence obtained.
We conducted our audit in accordance with .. [standard
wording]. We believe that the audit evidence we have 4.3 Communication with those charged with governance
obtained is sufficient and appropriate to provide a basis for
Report any events which may cast doubt on ability to
our adverse opinion.
continue as a going concern:
If some detail disclosed but considered insufficient, The event constitutes a material uncertainty;
express a qualified opinion. Appropriate use of the going concern basis;
Adequacy of the related disclosures.
Qualified Opinion Implications for the audit report.
We have audited . (standard wording)
In our opinion, except for the incomplete disclosure
Basis for Qualified Opinion
As discussed in Note Y [description] The financial
statements do not adequately disclose the matter.

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