• Review depreciation rates applied in relation to asset lives, past experience of profits and losses on disposals, and consistency with prior years and disclosed accounting policies.
• If assets have been revalued, consider:
  o Experience and independence of valuer
  o Scope of the valuer’s work
  o Methods and assumptions used
  o Whether valuation bases are in line with IFRSs

• Compare non-current assets in the general ledger with the non-current assets register and obtain explanations for differences.
• For a sample of assets which physically exist agree that they are recorded in the non-current asset register.

• Verily title to land and buildings by inspection of:
  o Title deeds
  o Land registry certificates
  o Leases
• Examine documents of title for other assets (including purchase invoices, contracts, hire purchase or lease agreements).

VFM focuses on the best combination of services for the lowest level of resources. The purpose of a VFM audit is to examine the economy, efficiency and effectiveness of the activity or process in question.

• Economy – Attaining the appropriate quantity and quality of physical human and financial resources (inputs) at lowest cost.
• Efficiency – The relationship between goods or services produced (outputs) and the resources used to produce them.
• Effectiveness – Concerned with how well an activity is achieving its policy objectives or other intended effects.

The points which might be taken into consideration before giving recommendations to a garage proprietor on a system of control for cash sales are as follows:
(i) The type of cash sales which might be made. The garage might, for instance, have cash sales from:
1. Petrol;
2. Sales of spares;
3. Repairs to vehicles;
4. Sale of motor vehicles;
5. Vehicle hire;
6. Sale of items from a shop on the forecourt.
(ii) The size of the garage and the number of staff available. This will affect the division of responsibilities and the possibility of one person’s work being proved independently by another.
(iii) The amount of control exercised by the proprietor over the day-to-day running of the garage.
(iv) The type of business (eg. partnership, sole trader of or company) and the effect which a breakdown in control may have over the need to publish certain information under statute.
(v) The documentation already available in the system and how this can be used to good effect under new recommendations.
(vi) The possibility of discounts being given and how this can be controlled and recorded.
(vii) The need not to overburden non-administrative staff with time-consuming administrative duties but to keep forms (eg. Showing total cash sales) as simple as possible.
(viii) The availability of tills which can accumulate total cash sales during a period.

(i) Where the use of the going concern assumption is appropriate but a material uncertainty exists, provided that the auditor agrees with the basis of preparation of the accounts and the situation is adequately disclosed, an unmodified opinion is issued. The audit report will however include an emphasis of matter paragraph highlighting the uncertainty to the user and referring them to the details in the disclosure note.
(ii) Where the material uncertainty exists but the situation is not adequately disclosed the opinion should be modified on the grounds that there is insufficient disclosure and the financial statements are materially misstated. Depending on the specific circumstances this may be a qualified ‘except for’ or adverse opinion.
(iii) If in the auditor’s judgement the company will not be able to continue as a going concern and the financial statements have been prepared on a going concern basis the auditor shall express an adverse opinion.
(iv) If the auditors are unable to form an opinion because they were not able to obtain sufficient appropriate audit evidence they shall issue an ‘except for’ qualified opinion or a disclaimer.
(v) If management is unwilling to extend its assessment where the period considered is less than twelve months from the reporting date the auditor shall consider the need to modify the opinion as a result of not obtaining this evidence.

External auditor’s responsibilities and the work that the auditor should perform in relation to going concern
Responsibilities
According to ISA 570 the auditor must:

• Evaluate management’s assessment of the entity’s ability to continue as a going concern.
• Consider whether there are, and remain alert throughout the audit for, events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern.
• Enquire of management its knowledge of events or conditions beyond the period of the assessment that may cast significant doubt on the entity’s ability to continue as a going concern.
• Obtain sufficient appropriate audit evidence to determine whether a material uncertainty exists if events or conditions are identified that cast significant doubt on the entity’s ability to continue as a going concern.
  Audit work
• As part of the overall risk assessment the auditor must consider whether there are any events or conditions and related business risks which may cast significant doubt on the company’s ability to continue.
• The auditor should evaluate the process by which management has assessed the viability of the company. The auditor should make enquires of those charged with governance and examine supporting documentation such as cash flow forecasts and budgets.
• The auditor must consider whether the period used by management to assess the viability of the company is sufficient. If the period covers less than twelve months from the reporting date the auditor should ask management to extend the period to twelve months from the reporting date.
• The auditor should evaluate the assumptions used by management and determine whether they seem reasonable in the light of other known facts.
• Where events or conditions have been identified which may cast significant doubt on the entity’s ability to continue as a going concern the auditor must review management’s plans for future actions and gather sufficient appropriate audit evidence to confirm whether a material uncertainty exists. This will include:
• Analysing and discussing the cash flow and interim financial statements.
• Reviewing the terms of debentures and loan agreements
• Reading minutes of the meetings of shareholders and directors for reference to financing difficulties.
• Inquiring of the company’s lawyers regarding litigation and claims.
• Assessing the possibility of raising additional funds.
• Reviewing events after the period end.
• The auditor must seek written representations from management regarding its plans for future action.

Criteria to be considered when assessing whether to place reliance on internal audit work include the following:
Objectivity of function
The external auditor should consider whom the internal auditors report to and whether they are subject to any conflicting responsibilities, constraints or restrictions. This will affect the capability of the internal auditors to communicate significant matters openly.
Scope of function
The external auditors should consider the extent and nature of assignments performed by the internal auditors and the action taken by management as a result of internal audit reports.
Technical Competence
The external auditors should consider whether the internal auditors have adequate technical training and proficiency.
Due professional care
The external auditors should consider whether the work of internal audit is properly planned, supervised, reviewed and documented.

Prevention, detection and reporting of fraud and error
External Auditors
Prevention and detection
The external auditors are bound by the requirements of ISA 240. This requires that auditors recognize that fraud and error may materially affect the financial statements and design procedures to ensure that the risk is minimized. The auditors have no specific requirement to prevent or detect fraud. However, they must maintain professional scepticism throughout the audit, recognizing that circumstances may exist that cause the financial statements to be materially misstated.
By conducting the audit in accordance with ISAs the auditor obtains reasonable assurance that the financial statements are free from material misstatement caused by fraud or error. However, due to the nature of fraud the risk of not detecting fraud is higher than the risk of not detecting error.
Reporting
ISA 240 also sets out the requirements in relation to reporting fraud. If auditors suspect or detect a fraud, they must report it on a timely basis to the appropriate level of management.
If management are implicated the matter must be communicated to those charged with governance, unless the fraud necessitates immediate reporting to a third party.
The matter should only be referred to in the audit report if the opinion is modified on those grounds. It may also be that the matter is one which needs reporting to a relevant authority in the public interest. If the auditors feel that this is so, they should seek legal advice before taking any action, and request that the entity reports itself. If the directors refuse to make any disclosure in these circumstances, the auditors should make the disclosure themselves.
Internal auditors
Prevention and detection
It is likely that the internal auditors will have a role both in the prevention and detection of fraud. Indirectly, they play a role in their involvement with the internal controls of a business, which are set up to limit risks to the company, one of which is fraud. Directly, they may be engaged by the directors to carry out test when a fraud is suspected, or routinely to discourage such activity.
However, if a serious fraud was suspected, a company might bring in external experts, such as forensic accountants or the police.
Reporting
If internal auditors discovered issues which made them suspect fraud, they would report it immediately to their superiors, who would report to those charged with governance. In the event that an internal auditor suspected top level fraud, he might make disclosure to the relevant authority in the public interest.

Benefits of an audit committee to external auditors
An audit committee can benefit the external auditor because the committee provides a channel of communication and forum for issues of concern. This acts to strengthen the position of the external auditor and reduces the risk of intimidation threat arising which may occur when providing feedback directly to the board.
The audit committee therefore allows the external auditor to assert his/her independence in the event of a dispute with management.
Benefits of an audit committee to internal auditor
The audit committee will help maintain the quality of the internal audit department since one of its roles will be to monitor and review the effectiveness of the company’s internal audit function.
Since the internal auditors are able to report findings to the audit committee rather than directly to the board, as with the external auditors, their independence is strengthen and they should feel more comfortable when reporting irregularities and problems, and making recommendations, in areas where there has been board member involvement.

Impact of interim audit work on internal controls on the final audit.
If the auditors are to place reliance on internal controls they must obtain evidence that controls have operated effectively throughout the period.
If the auditor obtains audit evidence about the operating effectiveness of controls at the interim audit, when it comes to the final audit, instead of having to gain evidence over controls covering the whole year the auditor can focus on obtaining audit evidence about significant changes to those controls subsequent to the interim period.
The auditor will need to determine the extent of the additional audit evidence to be obtained for the remaining period.

Factors to consider when determining the extent of further work on internal controls at the final audit:
At the final audit the auditor will need to gain additional audit evidence about controls that were operating during the period between the interim audit and the year end. When determining the extent of the additional work needed the auditor will take into account:

• The significance of the assessed risks of material misstatement at the assertion level.
• The specific controls that were tested during the interim period, and significant changes to them since they were tested, including changes in the information system, processes, and personnel.
• The degree to which audit evidence about the operating effectiveness of those controls was obtained.
• The length of the remaining period
• The extent to which the auditor intends to reduce further substantive procedures based on the reliance of controls.
• The strength of the control environment.

An internal audit department could look at existing procedures and systems in operation at Tark and make lots of useful recommendations to tighten up areas where there are deficiencies in controls.
An internal audit department could carry out value for money audits, looking at the economy, efficiency and effectiveness of processes and activities within the entity.
The internal auditors could examine the IT systems in place and make recommendations regarding these, including looking at the programmed controls.
The internal auditors could undertake financial audits to substantiate information in management and financial reporting.
The internal audit department could make recommendations in respect of good corporate governance, even though the company may not be required to comply with corporate governance guidelines.
The external auditors might be able to rely on work undertaken by the company’s internal auditors and this in turn could result in a reduced audit fee.
The company has to comply with financial services regulations so an internal audit department could undertake work to ensure that it is complying with all required legislation and regulations.

The presence of an internal audit department within the company would present a positive image to clients of the company and to shareholders.