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1. any relationship between pervasiveness in the FS and going concern ?
if an item is considered to be pervasive to the FS, can we assume it affects the going concern status of the company ?
2. in the quetion,september december 2016, question name Raven & Co ( there are two parts but i have a question under “Fire” question )
Answer sheet states that in the second sentence of the first paragraph, it says that there are no misstatement reevant to the matter but the question have not mentioned anything about the materia misstatement.
From my understanding, question states that the “fire” has been fully and satisfactorily reflected and disclosed in FS but it does not pose a significant risk to the going concern status of the Crow Co.
But deosn’t cease of production for more than six month assumed to be material misstatement ? in addition question simply states that it does not poase risk to the going concern status.
i do not understand how a stoppage of production for more than six months can’t be material to Crow Co
3. usually when we write audit opinion ( for example ) I ( as a candidate ) may be confused whether it’s qualified opinion / Adverse opinion, but when i write in the question, may i suggest both opinions ? or in every question it must be certain that only 1 opinion is possible
4. whenever we do for the ethics question, do we must specify whether to accept / decline the service ?
1. Only if the FS are drawn up on a going concern basis when that basis is inappropriate. In this case, to draw up the FS on an alternative “liquidation” or “break-up” basis would have a pervasive effect (e.g. write down PPE to recoverable amounts, write down inventory to NRV, reclassify all non-current assets/liabilities as current, etc).
Items that have a pervasive effect on the FS do not necessarily have anything to do with going concern. E.g. imagine all accounting records are destroyed in a fire during the year and the FS have to be prepared based on their reconstruction. That would have a pervasive effect on the FS but has nothing to do with GC (it was the records that were destroyed – not the assets).
2. The Q says “it does not pose a significant risk to the going concern status” – you must NOT contradict this and/or assume otherwise. What has been “fully and satisfactorily reflected” is a non-adjusting event after the reporting period.
What RoMM do you think arises from cessation of production? There will still be some sales/purchases/cash receipts/payments – these will be recorded – where is the misstatement? Read the Q – it does NOT say that there is no production for 6 months – only that “full production” will not resume for another 6 months (so may be it is surviving working at 70% capacity – it doesn’t matter – just don’t contradict the Q).
3. This is AAA not AA – at this level you must have sufficient understanding of the implications of a matter to judge whether it is “merely” material – or could possibly be pervasive. You will not get credit for sitting on the fence and saying “it could be this or it could be that”. By all means say “if this [circumstance/assumption], then qualified” but “if alternative [circumstance/assumption], then adverse” – but, as above, any circumstance/assumption must not contradict the scenario. So if most cases there will be only one “correct” answer.
4. Depends on the requirement – but whether commenting, discussing or concluding there will most likely be a mark for concluding whether or not a service can be provided.
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