Analyitical review procedures and going concern

1. ANALYTICAL REVIEW

ISA 520 defines Analytical procedures to meanevaluations of financial information made by a study of plausible relationships among both financial and non-financial data.Analytical procedures also encompass the investigation of identified fluctuations and relationships that are inconsistent with other relevant information or deviate significantly from predicted amounts.

The auditor should apply analytical procedures as risk assessment procedures to obtain an understanding of the entity and its environment and in the overall review at the end of the audit.Analytical procedures may

also be applied as substantive procedures

These are analysis of relationship between items of financial data, or between items of financial and non-financial data deriving form the same period or between comparable financial information deriving from different periods to identify consistencies and predicted pattern and or significant fluctuations and unexpected relationships and the results of investigation thereof.

Analytical procedures include the consideration of comparisons of the entity s financial information with, for example:

Comparable information for prior periods.

Anticipated results of the entity, such as budgets or forecasts, or

expectations of the auditor, such as an estimation of depreciation.

Similar industry information, such as a comparison of the entity s ratio of sales to accounts receivable with industry averages or with other entities of comparable size in the same industry.

Analytical procedures are used for the following purposes:

(a) As risk assessment procedures to obtain an understanding of the entity and its environment

(b) As substantive procedures when their use can be more effective or efficient than tests of details in reducing the risk of material misstatement at the assertion level to an acceptably low level

(c) As an overall review of the financial statements at the end of the audit

Analytical Procedures as Risk Assessment Procedures

The auditor should apply analytical procedures as risk assessment procedures to obtain an understanding of the entity and its environment.

Application of analytical procedures may indicate aspects of the entity of whichthe auditor was unaware and will assist in assessing the risks of material misstatement in order to determine the nature, timing and extent of further audit procedures.

Analytical procedures applied as risk assessment procedures use both financial and non-financial information, for example, the relationship between sales and square footage of selling space or volume of goods sold.

ISA 315, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement contains additional guidance on applying analytical procedures as risk assessment procedures.

The auditor designs and performs substantive procedures to be responsive to the related assessment of the risk of material misstatement at the assertion level.

The auditor s substantive procedures at the assertion level may be derived from tests of details, from substantive analytical procedures, or from a combination of both. The decision about which audit procedures to use to achieve a particular audit objective is based on the auditor s judgment about the expected effectiveness and efficiency of the available audit procedures in reducing the assessed risk of material misstatement at the assertion level to an acceptably low level.

The auditor will ordinarily inquire of management as to the availability and reliability of information needed to apply substantive analytical procedures and the results of any such procedures performed by the entity. It may be efficient to use analytical data prepared by the entity, provided the auditor is satisfied that such data is properly prepared.

The suitability of using substantive analytical procedures given the assertions

The reliability of the data, whether internal or external, from which the expectation of recorded amounts or ratios is developed

Whether the expectation is sufficiently precise to identify a material misstatement at the desired level of assurance.

The amount of any difference of recorded amounts from expected values that is acceptable

In determining the suitability of substantive analytical procedures given the assertions, the auditor considers the following:

(a)The assessment of the risk of material misstatement

(b)Any tests of details directed toward the same assertion

The Reliability of the Data

(a)Source of the information available.For example, information is ordinarily more reliable when it is obtained from independent sources outside the entity.

(b)Comparability of the information available.For example, broad industry data may need to be supplemented to be comparable to that of an entity that produces and sells specialized products.

(c)Nature and relevance of the information available.For example, whether budgets have been established as results to be expected rather than as goals to be achieved.

(d)Controls over the preparation of the information.For example, controls over the preparation, review and maintenance of budgets.

Whether the Expectation is Sufficiently Precise

In assessing whether the expectation can be developed sufficiently precise to identify a material misstatement at the desired level of assurance, the audi torconsiders factors such as the following:

The accuracy with which the expected results of substantive analytical procedures can be predicted . For example, the auditor will ordinarily expect greater consistency in comparing gross profit margins from one

period to another than in comparing discretionary expenses, such as research or advertising.

Whether the Expectation is Sufficiently Precise

The degree to which information can be disaggregated.For example, substantive analytical procedures may be more effective when applied to financial information on individual sections of an operation or to financial statements of components of a diversified entity, than when applied to the financial statements of the entity as a whole.

The availability of the information ,both financial and non-financial.For example, the auditor considers whether financial information, such as budgets or forecasts, and non-financial information, such as the number of units produced or sold, is available to design substantive analytical procedures. If the information is available, the auditor also considers the reliability of the information.

Amount of Difference of Recorded Amounts from Expected Values that is Acceptable

In designing and performing substantive analytical procedures, the auditor considers the amount of difference from expectation that can be accepted without further investigation.

This consideration is influenced primarily by materiality and the consistency with the desired level of assurance.

Determination of this amount involves considering the possibility that a combination of misstatements in the specific account balance, class of transactions, or disclosure could aggregate to an unacceptable amount. The auditor increases the desired level of assurance as the risk of material misstatement increases by reducing the amount of difference from the expectation that can be accepted without further investigation

Analytical Procedures in the Overall Review at the End of the Audit

The auditor should apply analytical procedures at or near the end of the audit when forming an overall conclusion as to whether the financial statements as a whole are consistent with the auditor s understanding of the entity.

The investigation of unusual fluctuations and relationships ordinarily begins with inquiries of management, followed by:

(a) Corroboration of management s responses, for example, by comparing them with the auditor s understanding of the entity and other audit evidence obtained during the course of the audit; and

(b) Consideration of the need to apply other audit procedures based on the results of such inquiries, if management is unable to provide an explanation or if the explanation is not considered adequate.

Score Supermarkets Ltdis a wholesaler of do-it yourself Products. You are the manager responsible for the audit of the company for the year ended 31 stDecember 2002. It operates in a rented premise; its fixed assets comprise motor vehicles, a microcomputer and some minor fixtures and fittings. The accounting records (sales ledger, purchases ledger, nominal ledger and payroll) are maintained on a microcomputer by a bookkeeper, and a part-time accountant prepares the annual accounts and quarterly management accounts.

The summarized draft accounts(Not IFRS compliant) for the year ended 31 stDecember 2002, and the previous year s audited accounts are as follows:

The company sells low value items to a larger number of customers. Most of the sales are on credit, with less than 5% of sales being in cash. It has over 700 live accounts on the sales ledger of which 70% are new customers in the past year. You have carried out audit checks on the accounting systems (ie compliance tests) and these tests have shown that the systems are generally reliable. However, there is no formal system of recording receipts of goods; the only record of receipt of goods is the suppliers delivery note, but thisis not dated by the goods received department , there is a greater riskof purchases cut-off errors. Your review of goods is to enable you to plan the audit of the year-end accounts, so that guidance is given to the audit staff and more time is spent in areas of highest audit risk.

Required :

(a) Calculate appropriate ratios for both years, and comment on the financial performance of Shoprite Ltd for the year ended 31 stDecember,2002, both in comparison with the previous year and in absolute terms.

(b) From your review of the financial statements and other matters included in the question, suggest the amount of audit work you should perform and the particular procedures you should carry out to minimize the audit risk of the following items appearing in the final accounts:

(a) Stock and gross profit margin

(b) Trade debtors

(c) Trade creditors

(d) Bank overdraft and cash flow forecasts

(c) state those matters you would wish , as auditors , to raise with management

(d) indicate why you would want to discuss these particular issues

(e) in respect to each matter you wish to raise outline two questions you would put to the management during this analytical review stage of audit

The purpose of this International Standard on ReviewEngagements (ISRE) is to establish standards and provide guidance on the auditor s professional responsibilities when an engagement to review financial statements is undertaken and on the form and content of the report that the auditor issues in connection with such a review.

This ISRE is directed towards the review of financial statements. However, it is to be applied to the extent practicable to engagements to review financial or other information. Guidance in the International Standard on Auditing (ISAs) may be useful to the auditor in applying this ISRE

OBJECTIVE

The objective of a review of financial statements is to enable an auditor to state whether, on the basis of procedures which do not provide all the evidence that would be required in an audit, anything has come to the auditor s attention that causes the auditor to believe that the financial statements are not prepared, in all material respects, in accordance with an identified financial reporting framework (negative assurance).

The auditor should plan and perform the review with an attitude of professional skepticism recognizing that circumstances may exist which cause the financial statements to be materially misstated.

For the purpose of expressing negative assurance in the review report, the auditor should obtain sufficient appropriate evidence primarily through inquiry and analytical procedures to be able to draw conclusions.

SCOPE OF THE REVIEW

The term scope of a review refers to the review procedures deemed necessary in the circumstances to achieve the objective of the review.The procedures required to conduct a review of financial statements should be determined by the auditor having regard to the requirements of this ISRE, relevant professional bodies, legislation, regulation and, where appropriate, the terms of the review engagement and reporting

requirements.

TERMS OF ENGAGEMENT

Matters that would be included in the engagement letter include the following:

The objective of the service being performed.

Management s responsibility for the financial statements.

The scope of the review, including reference to this ISRE (or relevant national standards or practices).

Unrestricted access to whatever records, documentation and other information requested in connection with the review.

A sample of the report expected to be rendered.

The fact that the engagement cannot be relied upon to disclose errors, illegal acts or other irregularities, for example, fraud or defalcations that may exist.

A statement that an audit is not being performed and that an audit opinion will not be expressed. To emphasize this point and to avoid confusion, the auditor may also consider pointing out that a review engagement will not satisfy any statutory or third party requirements for an audit.

GOING CONCERN CONSIDERATIONS

AND SUBSEQUENT EVENTS

ISA 570

.When planning and performing audit procedures and in evaluating the results thereof, the auditor should consider the appropriateness of management s use of the going concern assumption in the preparation of

the financial statements.

MANAGEMENT RESPONSIBILITY

The going concern assumption is a fundamental principle in the preparation of

financial statements. Under the going concern assumption, an entity is

ordinarily viewed as continuing in business for the foreseeable future with

neither the intention nor the necessity of liquidation, ceasing trading or seeking

protection from creditors pursuant to laws or regulations. Accordingly, assets

and liabilities are recorded on the basis that the entity will be able to realize its

assets and discharge its liabilities in the normal course of business .

Some financial reporting frameworks contain an explicit requirement for management to make a specific assessment of the entity s ability to continue as a going concern, and standards regarding matters to be considered and disclosures to be made in connection with going concern. For example,International Accounting Standard (IAS) 1 (Revised 2003), Presentation of Financial Statements requires management to make an assessment of an enterprise s ability to continue as a going concern

Management s assessment of the going concern assumption involves making a judgment, at a particular point in time, about the future outcome of events or conditions which are inherently uncertain. The following factors are relevant:

In general terms, the degree of uncertainty associated with the outcome of an event or condition increases significantly the further into the future a judgment is being made about the outcome of an event or condition.

For that reason, most financial reporting frameworks that require an

explicit management assessment specify the period for which management is required to take into account all available information.

Any judgment about the future is based on information available at the time at which the judgment is made. Subsequent events can contradict a judgment which was reasonable at the time it was made.

The size and complexity of the entity, the nature and condition of its

business and the degree to which it is affected by external factors all

affect the judgment regarding the outcome of events or conditions.

Examples of events or conditions, which may give rise to business risks, that individually or collectively may cast significant doubt about the going concern assumption are set out below. This listing is not all-inclusive nor does the

existence of one or more of the items always signify that a material uncertainty exists.

Financial

Net liability or net current liability position.

Fixed-term borrowings approaching maturity without realistic prospects of renewal or repayment; or excessive reliance on short-term borrowings to finance long-term assets.

Indications of withdrawal of financial support by debtors and other creditors.

Negative operating cash flows indicated by historical or prospective financial statements.

Adverse key financial ratios.

Substantial operating losses or significant deterioration in the value of assets used to generate cash flows.

Arrears or discontinuance of dividends.

Inability to pay creditors on due dates.

Inability to comply with the terms of loan agreements.

Change from credit to cash-on-delivery transactions with suppliers.

Inability to obtain financing for essential new product development or other essential investments.

Operating

Loss of key management without replacement.

Loss of a major market, franchise, license, or principal supplier.

Labor difficulties or shortages of important supplies.

Non-compliance with capital or other statutory requirements.

Pending legal or regulatory proceedings against the entity that may, if successful, result in claims that are unlikely to be satisfied.

Changes in legislation or government policy expected to adversely affect the entity.

The significance of such events or conditions often can be mitigated by other factors. For example,

the effect of an entity being unable to make its normal debt repayments may be counter-balanced by management s plans to maintain adequate cash flows by alternative means, such as by disposal of assets:

rescheduling of loan repayments, or

obtaining additional capital.

Similarly, the loss of a principal supplier may be mitigated by the availability of a suitable

alternative source of supply.

AUDITOR S RESPONSIBILITY

The auditor s responsibility is to consider the appropriateness ofmanagement s use of the going concern assumption in the preparation of the financial statements, and consider whether there are material uncertainties about the entity s ability to continue as a going concern that need to be disclosed in the financial statements.

The auditor considers the appropriateness of management s use of the going concern assumption even if the financial reporting framework used in the preparation of the financial statements does not include an explicit requirement for management to make a specific assessment of the entity s ability to continue as a going concern.

The auditor cannot predict future events or conditions that may cause an entity to cease to continue as a going concern. Accordingly, the absence of any reference to going concern uncertainty in an auditor s report cannot be viewed as a guarantee as to the entity s ability to continue as a going concern.

Planning the Audit and Performing Risk Assessment Procedures

In obtaining an understanding of the entity, the auditor should consider whether there are events or conditions and related business risks which may cast significant doubt on the entity s ability to continue as a going concern.

The auditor should remain alert for audit evidence of events or conditions and related business risks which may cast significant doubt on the entity s ability to continue as a going concern in performing audit procedures throughout the audit.

If such events or conditions are identified, the auditor should, in addition to performing the procedures, consider whether they affect the auditor s assessment of the risks of material misstatement.

Evaluating Management s Assessment

The auditor should evaluate management s assessment of the entity s ability to continue as a going concern.

The auditor should consider the same period as that used by management in making its assessment under the applicable financial reporting framework.

If management s assessment of the entity s ability to continue as a going concern covers less than twelve months from the balance sheet date, the auditor should ask management to extend its assessment period to twelve months from the balance sheet date.

Period Beyond Management s Assessment

The auditor should inquire of management as to its knowledge of events or conditions and related business risks beyond the period of assessment used by management that may cast significant doubt on the entity s ability to continue as a going concern.

For example, IAS 1 (Revised 2005) defines this as a period that should be at least, but is not limited to, twelve months from the balance sheet date.

Further Audit Procedures when Events or Conditions are Identified

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 should:

(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) Seek written representations from management regarding its plans for future action.

The auditor inquires 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.

The auditor also considers whether any additional facts or information are available since the date on which management made its assessment. The auditor obtains sufficient appropriate audit evidence that management s plans are feasible and that the outcome of these plans will improve the situation.

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

Analyzing and discussing cash flow, profit and other relevant forecasts with management.

Analyzing and discussing the entity s latest available interim financial statements.

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.

Inquiring 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.

When analysis of cash flow is a significant factor in considering the future outcome of events or conditions 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 compares:

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

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

Audit Conclusions and Reporting

Based on the audit evidence obtained, the auditor should determine if, in the auditor s judgment, a material uncertainty exists related to events or conditions that alone or in aggregate, may cast significant doubt on the entity s ability to continue as a going concern.

A material uncertainty exists when the magnitude of its potential impact is such that, in the auditor s judgment, clear disclosure of the nature and implications of the uncertainty is necessary for the presentation of the financial

statements not to be misleading.

.If adequate disclosure is made in the financial statements, the auditor should express an unqualified opinion but modify the auditor s report by adding an emphasis of matter paragraph that highlights the existence of a material uncertainty relating to the event or condition that may cast significant doubt on the entity s ability to continue as a going concern and draws attention to the note in the financial statements that discloses the matters.

In evaluating the adequacy of the financial statement disclosure, the auditor considers whether the information explicitly draws the reader s attention to the possibility that the entity may be unable to continue realizing its assets and discharging its liabilities in the normal course of business.

The following is an example of such a paragraph when the auditor is satisfied as to the adequacy of the note disclosure:

Without qualifying our opinion, we draw attention to Note X in the financial statements which indicates that the Company incurred a net loss of ZZZ during the year ended December 31, 20X1 and, as of that date, the Company s current liabilities exceeded its total assets by ZZZ. These conditions, along with other matters as set forth in Note X, indicate the existence of a material uncertainty which may cast significant doubt about the Company s ability to continue as a going concern.

In extreme cases, such as situations involving multiple material uncertainties that are significant to the financial statements, the auditor may consider it appropriate to express a disclaimer of opinion instead of adding an emphasis of matter paragraph.

If adequate disclosure is not made in the financial statements, the auditor should express a qualified or adverse opinion, as appropriate (ISA 700,

The Auditor s Report on Financial Statements,

The report should include specific reference to the fact that there is a material uncertainty that may cast significant doubt about the entity s ability to continue as a going concern.

The following is an example of the relevant paragraphs when a qualified opinion is to be expressed:

The Company s financing arrangements expire and amounts outstanding are payable on March 19, 20X1. The Company has been unable to re-negotiate or obtain replacement financing. This situation indicates the existence of a material uncertainty which may cast significant doubt on the Company s ability to continue as a going concern and therefore it may be unable to realize its assets and discharge its liabilities in the normal course of business. The financial statements (and notes thereto) do not disclose this fact.

In our opinion, except for the omission of the information included in the preceding paragraph, the financial statements give a true and fair view of (present fairly, in all material respects) the financial position of the Company at December 31, 20X0 and the results of its operations and its cash flows for the year then ended in accordance with

The Company s financing arrangements expired and the amount outstanding was payable on December 31, 20X0. The Company has been unable to re-negotiate or obtain replacement financing and is considering filing for bankruptcy. These events indicate a material uncertainty which may cast significant doubt on the Company s ability to continue as a going concern and therefore it may be unable to realize its assets and discharge its liabilities in the normal course of business. The financial statements (and notes thereto) do not disclose this fact.

In our opinion, because of the omission of the information mentioned in the preceding paragraph, the financial statements do not give a true and fair view of (or do not present fairly) the financial position of the Company as at December 31, 20X0, and of its results of operations and its cash flows for the year then ended in accordance with (and do not comply with )

If, in the auditor s judgment, the entity will not be able to continue as a going concern, the auditor should express an adverse opinion if the financial statements have been prepared on a going concern basis.

If, on the basis of the additional audit procedures carried out and the information obtained, including the effect of management s plans, the auditor s judgment is that the entity will not be able to continue as a going concern, the auditor concludes, regardless of whether or not disclosure has been made, that the going concern assumption used in the preparation of the financial statements is inappropriate and expresses an adverse opinion.

When the entity s management has concluded that the going concern assumption used in the preparation of the financial statements is not appropriate, the financial statements need to be prepared on an alternative authoritative basis.

If on the basis of the additional audit procedures carried out and the information obtained the auditor determines the alternative basis is appropriate, the auditor can issue an unqualified opinion if there is adequate disclosure but may require an emphasis of matter in the auditor s report to

draw the user s attention to that basis.

Management Unwilling to Make or Extend Its Assessment

I f management is unwilling to make or extend its assessment when requested to do so by the auditor, the auditor should consider the need to modify the auditor s report as a result of the limitation on the scope of the auditor s work.In certain circumstances, the auditor may believe that it is necessary to ask management to make or extend its assessment. If management is unwilling to do so, it is not the auditor s responsibility to rectify the lack of analysis by management, and a modified report may be appropriate because it may not be possible for the auditor to obtain sufficient appropriate evidence regarding the use of the going concern assumption in the preparation of the financial statements.

Significant Delay in the Signature or Approval of Financial Statements

When there is significant delay in the signature or approval of the financial statements by management after the balance sheet date, the auditor considers the reasons for the delay. When the delay could be related to events or conditions relating to the going concern assessment, the auditor considers the need to perform additional audit procedures, as well as the effect on the auditor s conclusion regarding the existence of a material uncertainty.

Mwananchi Engineering Company Ltd, company dealing with construction of roads and renting plaza is experiencing going concern problems. You are auditing the company s accounts to the year up to June 2001.

The company prepares monthly, as well as annual accounts and its accountant has supplied you with the following forecasts to enable you to assess whether the company will be a going concern.

The forecasts have been prepared on a monthly bases for the year to 30 thJune 2002,and are :

(a)Capital expenditure /disposal forecast

(b)profit forecast;

(c)cash flow forecast.

The capital expenditure /disposal forecast and profit forecast have been used to prepare the cash flow forecast.

Required:

(a) Briefly describe what you understand by the term going concern and state the minimum period you would expect the company to continue in business for it to be considered a going concern

(b) List the factors which may indicate that a company is not a going concern and briefly describe why each of these factors indicates going concern problems.

(c) Describe the work you would perform to verify that the value of items in the following forecasts ,prepared by the company s Chief accountant ,are reasonable

1. Capital expenditure /disposal forecast;

2. Profit forecast;

3. Cash flow forecast.

(d)Briefly describe further work, in addition to that described in (b) and (c) above you would perform to enable you to determine whether the company is a going Concern.

SUBSEQUENT EVENTS

ISA 560

In this ISA, the term subsequent events is used to referevents occurring between period end and the date of the auditor s report, and facts discovered after the date of the auditor s report.

The auditor should consider the effect of subsequent events on the financial statements and on the auditor s report.

International Accounting Standard 10, Contingencies and Events Occurring After the Balance Sheet Date deals with the treatment in financial statements of events, both favorable and unfavorable, occurring after period end and

identifies two types of events:

(a) Those that provide further evidence of conditions that existed at period end; and

(b) Those that are indicative of conditions that arose subsequent to period end.

Events Occurring Up to the Date of the Auditor s Report

The auditor should perform audit procedures designed to obtain sufficient appropriate audit evidence that all events up to the date of the auditor s report that may require adjustment of, or disclosure in, the financial statements have been identified.

These procedures are in addition to procedures which may be applied to specific transactions occurring after period end to obtain audit evidence as to account balances as at period end, for example, the testing of inventory cutoff and payments to creditors. The auditor is not, however, expected to conduct a continuing review of all matters to which previously applied audit procedures have provided satisfactory conclusions.

The audit procedures to identify events that may require adjustment of, or disclosure in, the financial statements would be performed as near as practicable to the date of the auditor s report. Such audit procedures take into account the auditor s risk assessment and ordinarily include the following:

Reviewing procedures management has established to ensure that subsequent events are identified.

Reading minutes of the meetings of shareholders, those charged with governance, including established committees such as relevant executive committees and the audit committee, held after period end and inquiring about matters discussed at meetings for which minutes are not yet available.

Reading the entity s latest available interim financial statements and, as

considered necessary and appropriate, budgets, cash flow forecasts and

other related management reports.

Inquiring, or extending previous oral or written inquiries, of the entity s

legal counsel concerning litigation and claims.

Inquiring of management as to whether any subsequent events have

occurred which might affect the financial statements. Examples of

inquiries of management on specific matters are:

Reading the entity s latest available interim financial statements and, as considered necessary and appropriate, budgets, cash flow forecasts and other related management reports.

Inquiring, or extending previous oral or written inquiries, of the entity s legal counsel concerning litigation and claims.

Inquiring of management as to whether any subsequent events have occurred which might affect the financial statements. Examples of inquiries of management on specific matters are:

. The current status of items that were accounted for on the basis of preliminary or inconclusive data.

. Whether new commitments, borrowings or guarantees have been entered into.

. Whether sales or acquisition of assets have occurred or are planned.

. Whether the issue of new shares or debentures or an agreement to merge or liquidate has been made or is planned.

. Whether any assets have been appropriated by government or destroyed, for example, by fire or flood.

. Whether there have been any developments regarding risk areas and contingencies.

. Whether any unusual accounting adjustments have been made or are contemplated.

. Whether any events have occurred or are likely to occur which will bring into question the appropriateness of accounting policies used in the financial statements as would be the case, for example, if such events call into question the validity of the going concern assumption.

When a component, such as a division, branch or subsidiary, is audited by another auditor, the auditor would consider the other auditor s procedures regarding events after period end and the need to inform the other auditor of

the planned date of the auditor s report.

When the auditor becomes aware of events which materially affect the financial statements, the auditor should consider whether such events are properly accounted for and adequately disclosed in the financial statements.

Facts Discovered After the Date of the Auditor s Report but Before the Financial Statements are Issued

The auditor does not have any responsibility to perform audit procedures or make any inquiry regarding the financial statements after the date of the auditor s report.

During the period from the date of the auditor s report to the date the financial statements are issued, the responsibility to inform the auditor of facts which may affect the financial statements rests with management.

When, after the date of the auditor s report but before the financial statements are issued, the auditor becomes aware of a fact which may materially affect the financial statements, the auditor should consider whether the financial statements need amendment, should discuss the matter with management, and should take the action appropriate in the circumstances.

When management amends the financial statements, the auditor would carry out the audit procedures necessary in the circumstances and would provide management with a new report on the amended financial statements. The new

auditor s report would be dated not earlier than the date the amended financial statements are signed or approved and, accordingly, the audit procedures would be extended to the date of the new auditor s report.

When management does not amend the financial statements in circumstances where the auditor believes they need to be amended and the auditor s report has not been released to the entity, the auditor should express a qualified opinion or an adverse opinion.

When the auditor s report has been released to the entity, the auditor would notify those charged with governance not to issue the financial statements and the auditor s report thereon to third parties. If the financial statements are subsequently released, the auditor needs to take action to prevent reliance on the auditor s report. The action taken will depend on the auditor s legal rights and obligations and the recommendations of the auditor s lawyer

Facts Discovered After the Financial Statements have been Issued

After the financial statements have been issued, the auditor has no obligation to make any inquiry regarding such financial statements.

When, after the financial statements have been issued, the auditor becomes aware of a fact which existed at the date of the auditor s report and which, if known at that date, may have caused the auditor to modify the auditor s report, the auditor should consider whether the financial statements need revision, should discuss the matter with management, and should take the action appropriate in the circumstances.

The new auditor s report should include an emphasis of a matter paragraph referring to a note to the financial statements that more extensively discusses the reason for the revision of the previously issued financial statements and to the earlier report issued by the auditor.

The new auditor s report would be dated not earlier than the date the revised financial statements are approved

When management does not take the necessary steps to ensure that anyone in receipt of the previously issued financial statements together with the auditor s report thereon is informed of the situation and does not revise the financial statements in circumstances where the auditor believes they need to be revised, the auditor would notify those charged with governance of the entity that action

will be taken by the auditor to prevent future reliance on the auditor s report. The action taken will depend on the auditor s legal rights and obligations and the recommendations of the auditor s lawyers.

It may not be necessary to revise the financial statements and issue a new auditor s report when issue of the financial statements for the following period is imminent, provided appropriate disclosures are to be made in such statements.

Technology

Analyitical review procedures and going concern