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You are an audit manager of Elm & Co and are finalising the audit of the financial statements of Oak Co for the year ended 31 May 20X6. You are reviewing the results of the final analytical procedures and other outstanding points on the audit file. The auditor’s report is due to be signed on 12 December 20X6.
The following ratio analysis has been completed as part of the final analytical procedures:
———————————-20X6 Final———————20X6 Planning————-20X5 Final
Gross profit margin ————9%—————————– 11% ————————-12%
Quick ratio ———————-0.2——————————-0.6————————— 0.8
Payable days ——————-45——————————-40—————————–37
The financial statements for the year ended 31 May 20X6 have been prepared on a going concern basis. The initial going concern assessment conducted by the management of Oak Co covers the period to 30 November 20X6.
Q. Which of the following is an appropriate course of action for the auditor to take in respect of management’s going concern assessment?
A. Request management extend the assessment to the date of the auditor’s report
B. Design and carry out procedures to only assess going concern in the period from 31 May 20X6 to the date of the auditor’s report
C. Request management extend the assessment to cover at least until 31 May 20X7
D. Accept the time frame used by management as the going concern review is their responsibility
As per my Kaplan Revision Kit answer is Option C. Why the assessment should extent to 31 May 20X7?
Because management’s assessment for the “foreseeable future” cannot be less than 12 months from the end of the accounting period (see page 36 of the notes).
Please note that if you download the notes https://opentuition.com/acca/aa/ you will find that you can search on key words to find answers. This should be a more effective use of your time than copying questions into posts.