You are an audit senior for an audit firm and are currently working on the audit of Technolab, a company which produces sophisticated electronic laboratory equipment. The company imports a high proportion of the components it uses from China.
The equipment is used by some laboratories dealing with hazardous chemicals.
As the audit draws to a close, the partner in charge has asked you to ensure that all procedures relating to subsequent events and going concern are properly performed. You are to consider the audit work to be performed in relation to ISA 560 Subsequent Events and ISA 570 Going Concern.
Required:
a) Describe the auditor’s responsibilities for subsequent events occurring between: (6 marks)
(i) The year-end date and the date the auditor’s report is signed.
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Between the year-end date and the date the auditor’s report is signed, the auditors shall perform audit procedures which will identify and detect all material subsequent events which require adjustment of or disclosure in the financial statements.
Additional audit procedures are not required where satisfactory audit evidence has been gained.
(ii) The date the auditor’s report is signed and the date the financial statements are issued.
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The auditor has no obligation to perform any audit procedures between the date the auditor’s report is signed and the date the financial statements are issued.
However, if a fact becomes known that would have influenced the auditor’s report had the auditor known it at the date the auditor’s report was signed then the issue shall be discussed with management to determine whether the financial statements need amendment.
Where the financial statements need amending, additional audit procedures shall be conducted on that area and the original subsequent events review extended to the date of the of the new auditor’s report which will be issued.
If management refuse to amend the financial statements and the auditor’s report has already been provided to the entity, and if management intend to issue the financial statements with this report, the auditor shall take steps to prevent reliance on the report. This might include speaking at the AGM or resigning.