AUDB323 Audit and Investigation

Review Questions: Effect of Post-Balance Sheet Events

1. The following events occurred after the reporting date. For each event, state whether
it is an adjusting event or non-adjusting event:
a. Purchase of major subsidiary by the entity.
b. Discontinuing an operation.
c. A customer with long outstanding debt became bankrupt.
d. Issue of shares by the entity.
e. The commencement of a major legal case arising solely out of events that
occurred after the reporting date.
f. The settlement of a long outstanding lawsuit after the reporting date for an
amount different from the amount recorded in the year-end financial
statements.
g. Changes in tax laws that have significant effect on current and deferred tax.

2. ISA 570 Going Concern, differentiates between management’s and the auditor’s
responsibilities for the assessment of the going concern status of a company. Discuss.

3. The management of ABC Bhd believes that the company is able to continue as a going
concern. What options are available to the auditor if he/she disagrees with
management’s going concern assessment of that company?

4. What are the main purposes of obtaining a management representation letter?