ISA 560 Subsequent events gives guidance to the auditor with regards events after the reporting

period. The audit of one of your audit clients has just been concluded and the audit report signed

and the financial statements issued.

The following matters came to the attention of your firm of Chartered Accountants after the issue

of the financial statements. Included in the

accounts receivables figure at the period end is an

amount of K300,000.00 which is an amount

due from a customer. No allowance for receivables

was made at the period end and soon after the issue of the financial statements the liquidator of

this company issued a press statement that all creditors would only get K0.45 per kwacha in full

settlement of the amounts owed.

At the period end there was a pending court case. Management was of the view that the outcome

of the

case would be in favour of the company. The auditors also concluded that the case was

strong

in favour of the company and so managements view that no provision should be made

was supported. Before the audit report was issued the Supreme Court passed judgment against

the company and the company was fined K500,000.00 and the amount material to the financial

statements.

You are concerned about the going concern assumption of the company. Management in their

report of the directors has stated that in their opinion the company is a going concern and will be

able to meet

its debts in the foreseeable future. Your firm decides to obtain a management

representation

with regards the going concern assumption. The senior managers have all taken

leave after the audit and the only person available is the financial accountant who has only been

with the company for less than

six months and this will be the first time that he will be making

representations to the auditors.

Required:

(i)

Discuss the reliability of

the written representation that your firm has obtained from the

Financial Accountant. (5 marks)

(ii)

Evaluate the above events and where relevant state the effect on your audit opinion.

(6 marks) at Pamodzi hotel

(iii)

Outline what is meant by the term going concern and mention problems that can lead to the

sale of a business as a going concern (9 Marks)

Total Marks [20 marks]