Examiner Answer:
Under the 'Uncertainty surrounding legal case' and 'Conduct of client and group auditor'
Will the component auditor concern about the inappropriate preparing the parent's FS on an incorrect basis and associated disclosure in the FS?
I understand that component auditor may concern about the going concern status of the parent company , but the related disclosure risk and inappropriate basis of preparing FS, is it should be more concern by the group auditor who has the responsibility to it?
Thank you.
Ask the Tutor ACCA AAA
Sept/Dec 2016 Q4 b(i)
6y ago#1When reading requirements it may help to add words (mine in capitals):
"Comment on the ethical and professional issues raised, considering any implications for completion of the audit BY THORNHILL, in respect of:
(i) The evidence obtained in relation to the support offered by Valerian Co TO NORTHWEST."
Then go back to intro para:
"You are an audit manager at Thornhill & Co responsible for the audit of Northwest Co, a subsidiary of Valerian Co. A different audit firm is responsible for the audit of Valerian Co and the Valerian Group financial statements."
So "you" are component auditor of a company whose going concern depends on the parent and you are trying to complete YOUR audit (of the subsidiary). The financial statements that may be prepared on an incorrect basis are NORTHWEST's - not the parent's.
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