Question

Audit Question:

ABC Limited is a copper producer in Africa. You are the auditor of ABC and auditing it's financial statements for the year ended 31 December 2016. Subsequent to the year-end date, the compant was found to be in breach of an environmental regulation caused the whole copper mine to shut down. ABC subjected to a significant amount of fines charged by the government. Because of the shutting down of the mine, ABC was unable to deliver the copper to its customers on time and is now facing potential litigation claims filed by its customers.

Please explain the responsibility of the auditor in two situation, (a) subsequent events and (b) going concern, also provide further audit procedures to response the aspects.

Answer 1

Events may occur between the end of the reporting period and the date when financial statements are authorized for issue which may present information that should be considered in the preparation of financial statements. Initiation of litigation against the company arising out of events that occurred after the reporting period does not indicate the existence of liability at the reporting date and shall not therefore trigger the recognition of liability in the financial statements in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets. Thus Entity shall not adjust the financial statements in respect of those events after the end of reporting period that reflect conditions that arose after the end of reporting period and only report about the litigation in their Annual Report

As for Going Concern, auditor needs to consider facts like:

• Proposition of the copper produced in Africa in thier whole production
• Another viable options to proceed production
• Liabilities in respect of African operations
• Legal obligations status
• Covenant conditions imposed by the lenders