QUESTION SIX Going Concern assumption is important in Financial Audit, without which an entity being audited is viewed as not operating to a foreseeable future. In Private sector, going concern is also assumed, though the assumption may be different from financial consideration. Required: Discuss the factors an auditor will consider in determining the going concern assumption of a public sector entity. QUESTION SEVEN Example: Subsequent events You are the auditor in charge of the audit of Hindsight, which has a 30 June year end. The subsequent events review for the year ended 30 June Year 5 revealed that, on 1 August Year 5, a receiver was appointed at a major customer. At 30 June Year 5 that customer owed GH 200,000 and goods costing GH 300,000 made to that customers specification were held in inventory. Both these amounts are material.

Required List the matters to which you would direct your attention in respect of the above in relation to the audit for the year ended 30 June Year 5, if the audit report on the financial statements has not yet been written Check that the directors are willing to adjust the financial statements for this adjusting event after the reporting period. Establish whether any cash has been received from this customer since the year end. Review any correspondence from the receiver to establish to what extent the outstanding debt will be recovered. Consider whether the goods held in inventory are now valued at the lower of cost and NRV, given that these goods were made to the customers specification. This may depend on whether or not those goods can be sold to a different customer. In the light of the above, consider whether any write downs proposed by the directors to receivables and/or inventory are reasonable. If they are not, or if the directors refuse to adjust the financial statements, consider the impact on the audit report. Note If the event occurs after the date of the audit report but before the financial statements are issued, the auditor should discuss the matter with the directors of the client entity and ask what they propose to do. If the directors intend to amend the financial statements to include or report the event, the auditor should re-write the audit report accordingly and give it a new date. If the directors say that they do not intend to amend the financial statements, the auditor must consider the most appropriate course of action. If it is too late to re-write the audit report the auditor should consider communicating with the shareholders in another way; for example by asking to speak at the annual general meeting of the entity (which is the auditors right). In the longer term, the auditor should also consider resigning from the audit, but this would not be appropriate as an immediate response to the problem. The immediate requirement is to convey the auditors opinion to the shareholders.