Review and Reporting

SECTION A - CASE 2: GREENHARVEST CO-OP SCENARIO: You are the audit senior for GreenHarvest Co-op, a large agricultural cooperative, for the year ended 31 March 20X5. The audit is nearing completion. During the review phase, you note the following: 1) A major customer, representing 15% of receivables, went into liquidation on 15 April 20X5. 2) GreenHarvest is facing a lawsuit from a supplier regarding contaminated fertilizer, which the legal counsel advises has a 30% chance of success. 3) The directors have refused to disclose a key executive's remuneration, which is required by local legislation, though the amount is immaterial to the financial statements as a whole. QUESTION: How should the liquidation of the major customer on 15 April 20X5 be treated in the financial statements for the year ended 31 March 20X5?

SECTION A - CASE 2: GREENHARVEST CO-OP SCENARIO: You are the audit senior for GreenHarvest Co-op, a large agricultural cooperative, for the year ended 31 March 20X5. The audit is nearing completion. During the review phase, you note the following: 1) A major customer, representing 15% of receivables, went into liquidation on 15 April 20X5. 2) GreenHarvest is facing a lawsuit from a supplier regarding contaminated fertilizer, which the legal counsel advises has a 30% chance of success. 3) The directors have refused to disclose a key executive's remuneration, which is required by local legislation, though the amount is immaterial to the financial statements as a whole. QUESTION: Based on the legal counsel's advice that the lawsuit has a 30% chance of success, what is the correct accounting treatment under IAS 37 Provisions, Contingent Liabilities and Contingent Assets?

SECTION A - CASE 2: GREENHARVEST CO-OP SCENARIO: You are the audit senior for GreenHarvest Co-op, a large agricultural cooperative, for the year ended 31 March 20X5. The audit is nearing completion. During the review phase, you note the following: 1) A major customer, representing 15% of receivables, went into liquidation on 15 April 20X5. 2) GreenHarvest is facing a lawsuit from a supplier regarding contaminated fertilizer, which the legal counsel advises has a 30% chance of success. 3) The directors have refused to disclose a key executive's remuneration, which is required by local legislation, though the amount is immaterial to the financial statements as a whole. QUESTION: What is the impact on the auditor's report of the directors' refusal to disclose the key executive's remuneration?

SECTION A - CASE 2: GREENHARVEST CO-OP SCENARIO: You are the audit senior for GreenHarvest Co-op, a large agricultural cooperative, for the year ended 31 March 20X5. The audit is nearing completion. During the review phase, you note the following: 1) A major customer, representing 15% of receivables, went into liquidation on 15 April 20X5. 2) GreenHarvest is facing a lawsuit from a supplier regarding contaminated fertilizer, which the legal counsel advises has a 30% chance of success. 3) The directors have refused to disclose a key executive's remuneration, which is required by local legislation, though the amount is immaterial to the financial statements as a whole. QUESTION: During the review, you also assess GreenHarvest's ability to continue as a going concern. Which TWO of the following would be considered financial indicators of going concern problems for an agricultural cooperative?

SECTION A - CASE 2: GREENHARVEST CO-OP SCENARIO: You are the audit senior for GreenHarvest Co-op, a large agricultural cooperative, for the year ended 31 March 20X5. The audit is nearing completion. During the review phase, you note the following: 1) A major customer, representing 15% of receivables, went into liquidation on 15 April 20X5. 2) GreenHarvest is facing a lawsuit from a supplier regarding contaminated fertilizer, which the legal counsel advises has a 30% chance of success. 3) The directors have refused to disclose a key executive's remuneration, which is required by local legislation, though the amount is immaterial to the financial statements as a whole. QUESTION: Under ISA 580 Written Representations, what specific representation must the auditor obtain from management regarding subsequent events?

SECTION A - CASE 2: AERODYNAMICS LOGISTICS AeroDynamics Logistics is a drone delivery startup. You are the audit senior for the year ended 30 September 20X6. During the audit, you note the following: 1. The company has a significant cash burn rate and its main operating license expires in two months, with renewal pending a safety review. 2. On 15 October 20X6, a major warehouse fire destroyed 40% of their drone fleet. 3. A key customer, accounting for 25% of revenue, declared bankruptcy on 5 November 20X6. The financial statements are due to be signed on 30 November 20X6. Which TWO of the following are operating indicators that AeroDynamics Logistics may not be a going concern? (Select TWO)

SECTION A - CASE 2: AERODYNAMICS LOGISTICS AeroDynamics Logistics is a drone delivery startup. You are the audit senior for the year ended 30 September 20X6. During the audit, you note the following: 1. The company has a significant cash burn rate and its main operating license expires in two months, with renewal pending a safety review. 2. On 15 October 20X6, a major warehouse fire destroyed 40% of their drone fleet. 3. A key customer, accounting for 25% of revenue, declared bankruptcy on 5 November 20X6. The financial statements are due to be signed on 30 November 20X6. How should the warehouse fire on 15 October 20X6 be treated in the financial statements for the year ended 30 September 20X6?

SECTION A - CASE 2: AERODYNAMICS LOGISTICS AeroDynamics Logistics is a drone delivery startup. You are the audit senior for the year ended 30 September 20X6. During the audit, you note the following: 1. The company has a significant cash burn rate and its main operating license expires in two months, with renewal pending a safety review. 2. On 15 October 20X6, a major warehouse fire destroyed 40% of their drone fleet. 3. A key customer, accounting for 25% of revenue, declared bankruptcy on 5 November 20X6. The financial statements are due to be signed on 30 November 20X6. Assuming the key customer owed AeroDynamics a material balance at 30 September 20X6, how should the customer's bankruptcy on 5 November 20X6 be treated?

SECTION A - CASE 2: AERODYNAMICS LOGISTICS AeroDynamics Logistics is a drone delivery startup. You are the audit senior for the year ended 30 September 20X6. During the audit, you note the following: 1. The company has a significant cash burn rate and its main operating license expires in two months, with renewal pending a safety review. 2. On 15 October 20X6, a major warehouse fire destroyed 40% of their drone fleet. 3. A key customer, accounting for 25% of revenue, declared bankruptcy on 5 November 20X6. The financial statements are due to be signed on 30 November 20X6. Which TWO of the following audit procedures should be performed to assess whether AeroDynamics Logistics is a going concern? (Select TWO)

SECTION A - CASE 2: AERODYNAMICS LOGISTICS AeroDynamics Logistics is a drone delivery startup. You are the audit senior for the year ended 30 September 20X6. During the audit, you note the following: 1. The company has a significant cash burn rate and its main operating license expires in two months, with renewal pending a safety review. 2. On 15 October 20X6, a major warehouse fire destroyed 40% of their drone fleet. 3. A key customer, accounting for 25% of revenue, declared bankruptcy on 5 November 20X6. The financial statements are due to be signed on 30 November 20X6. Assume the auditor concludes that a material uncertainty exists related to going concern. Management has adequately disclosed this material uncertainty in the notes to the financial statements. What is the impact on the auditor's report?

CASE 3: AQUAGRID UTILITIES PLC AquaGrid Utilities PLC is a listed public water utility company. The audit for the year ended 31 March 2026 is nearing completion. In April 2026, a major water main burst, causing significant flooding and resulting in a pending lawsuit against AquaGrid. Furthermore, the company is struggling to meet its debt covenants due to a regulatory cap on water tariffs. The audit partner is reviewing the draft financial statements and considering the implications for the auditor's report. How should the burst water main and resulting lawsuit in April 2026 be treated in the financial statements for the year ended 31 March 2026?

CASE 3: AQUAGRID UTILITIES PLC AquaGrid Utilities PLC is a listed public water utility company. The audit for the year ended 31 March 2026 is nearing completion. In April 2026, a major water main burst, causing significant flooding and resulting in a pending lawsuit against AquaGrid. Furthermore, the company is struggling to meet its debt covenants due to a regulatory cap on water tariffs. The audit partner is reviewing the draft financial statements and considering the implications for the auditor's report. Given the struggle to meet debt covenants, which of the following procedures should the auditor perform to assess AquaGrid's ability to continue as a going concern? (Select ALL that apply)

CASE 3: AQUAGRID UTILITIES PLC AquaGrid Utilities PLC is a listed public water utility company. The audit for the year ended 31 March 2026 is nearing completion. In April 2026, a major water main burst, causing significant flooding and resulting in a pending lawsuit against AquaGrid. Furthermore, the company is struggling to meet its debt covenants due to a regulatory cap on water tariffs. The audit partner is reviewing the draft financial statements and considering the implications for the auditor's report. Assume the auditor concludes that a material uncertainty exists related to going concern (due to the debt covenants), but management has adequately disclosed this in the financial statements. What is the impact on the auditor's report?

CASE 3: AQUAGRID UTILITIES PLC AquaGrid Utilities PLC is a listed public water utility company. The audit for the year ended 31 March 2026 is nearing completion. In April 2026, a major water main burst, causing significant flooding and resulting in a pending lawsuit against AquaGrid. Furthermore, the company is struggling to meet its debt covenants due to a regulatory cap on water tariffs. The audit partner is reviewing the draft financial statements and considering the implications for the auditor's report. Because AquaGrid is a listed entity, the auditor must communicate Key Audit Matters (KAM) in the audit report. Which of the following best describes a Key Audit Matter?

CASE 3: AQUAGRID UTILITIES PLC AquaGrid Utilities PLC is a listed public water utility company. The audit for the year ended 31 March 2026 is nearing completion. In April 2026, a major water main burst, causing significant flooding and resulting in a pending lawsuit against AquaGrid. Furthermore, the company is struggling to meet its debt covenants due to a regulatory cap on water tariffs. The audit partner is reviewing the draft financial statements and considering the implications for the auditor's report. During the audit, the team identified several uncorrected misstatements that are immaterial both individually and in aggregate. According to ISA 260, what is the auditor's responsibility regarding these uncorrected misstatements?

SECTION A - CASE 2: GREENYIELD AGRI-COOP GreenYield Agri-Coop is a large agricultural cooperative. You are the audit senior for the year ended 30 September 20X5. During the audit, you note the following: 1. A severe, unprecedented drought during the summer of 20X5 has decimated crop yields, raising significant going concern issues. 2. On 15 November 20X5, a major customer of GreenYield, who owed $1.2m at the year-end, declared bankruptcy due to a fraud discovered in October 20X5. 3. Management has prepared cash flow forecasts for 12 months from the date of approval of the financial statements, showing a severe cash shortage unless a bank loan is renegotiated. 4. Management refuses to provide a written representation confirming their assessment of the cooperative's ability to continue as a going concern. Question: Regarding the major customer declaring bankruptcy on 15 November 20X5, how should this subsequent event be treated in the financial statements for the year ended 30 September 20X5?

SECTION A - CASE 2: GREENYIELD AGRI-COOP GreenYield Agri-Coop is a large agricultural cooperative. You are the audit senior for the year ended 30 September 20X5. During the audit, you note the following: 1. A severe, unprecedented drought during the summer of 20X5 has decimated crop yields, raising significant going concern issues. 2. On 15 November 20X5, a major customer of GreenYield, who owed $1.2m at the year-end, declared bankruptcy due to a fraud discovered in October 20X5. 3. Management has prepared cash flow forecasts for 12 months from the date of approval of the financial statements, showing a severe cash shortage unless a bank loan is renegotiated. 4. Management refuses to provide a written representation confirming their assessment of the cooperative's ability to continue as a going concern. Question: Assume management successfully renegotiates the bank loan, but a material uncertainty regarding going concern still exists. Management has adequately disclosed this material uncertainty in the financial statements. What is the impact on the auditor's report?

SECTION A - CASE 2: GREENYIELD AGRI-COOP GreenYield Agri-Coop is a large agricultural cooperative. You are the audit senior for the year ended 30 September 20X5. During the audit, you note the following: 1. A severe, unprecedented drought during the summer of 20X5 has decimated crop yields, raising significant going concern issues. 2. On 15 November 20X5, a major customer of GreenYield, who owed $1.2m at the year-end, declared bankruptcy due to a fraud discovered in October 20X5. 3. Management has prepared cash flow forecasts for 12 months from the date of approval of the financial statements, showing a severe cash shortage unless a bank loan is renegotiated. 4. Management refuses to provide a written representation confirming their assessment of the cooperative's ability to continue as a going concern. Question: Management's refusal to provide a written representation regarding their assessment of going concern constitutes a limitation on scope. If the auditor considers this limitation to be pervasive, what type of audit opinion should be issued?

SECTION A - CASE 2: GREENYIELD AGRI-COOP GreenYield Agri-Coop is a large agricultural cooperative. You are the audit senior for the year ended 30 September 20X5. During the audit, you note the following: 1. A severe, unprecedented drought during the summer of 20X5 has decimated crop yields, raising significant going concern issues. 2. On 15 November 20X5, a major customer of GreenYield, who owed $1.2m at the year-end, declared bankruptcy due to a fraud discovered in October 20X5. 3. Management has prepared cash flow forecasts for 12 months from the date of approval of the financial statements, showing a severe cash shortage unless a bank loan is renegotiated. 4. Management refuses to provide a written representation confirming their assessment of the cooperative's ability to continue as a going concern. Question: If a 'Material Uncertainty Related to Going Concern' section is included in the auditor's report, where should it be positioned according to ISA 700 (Revised)?

CASE SCENARIO: AquaPure Utilities Co AquaPure Utilities Co is a recently privatized water utility company. You are an audit manager at Blue & Co, responsible for the audit of AquaPure for the year ended 31 December 20X5. AquaPure operates highly specialized water treatment facilities. Management has requested that Blue & Co provide a valuation service for a newly constructed, complex water filtration plant, as AquaPure lacks the internal expertise to value it for inclusion in the financial statements. The filtration plant represents 15% of AquaPure's total assets. Furthermore, during the year, AquaPure was fined by the environmental regulator for a minor chemical spill, which the financial controller has refused to disclose in the financial statements, arguing it is not material by size. QUESTION: If the auditor concludes that the environmental fine is qualitatively material and management still refuses to disclose it, what is the most appropriate impact on the auditor's report?

CASE SCENARIO: Global Freightways PLC Global Freightways PLC is a cross-border logistics and shipping multinational. You are the audit senior for the year ended 31 March 20X7. The company has complex revenue recognition policies due to shipments spanning multiple accounting periods. Furthermore, they hold significant foreign currency bank accounts. Global Freightways relies heavily on a bespoke, automated IT system called 'Track-It' to record shipments, calculate freight charges, and generate invoices automatically based on weight and distance. QUESTION: At the end of the audit, you request written representations from management. According to ISA 580 (Written Representations), which of the following statements regarding written representations is TRUE?

CASE SCENARIO: CyberShield Solutions CyberShield Solutions provides cybersecurity consulting and monitoring services. You are the audit manager for the year ended 28 February 20X8. The audit is nearing completion, and the auditor's report is due to be signed on 15 May 20X8. On 10 April 20X8, CyberShield announced that its own internal servers had been breached by hackers in January 20X8, compromising sensitive data of several major clients. Consequently, on 25 April 20X8, their largest client, 'MegaBank', which accounts for 40% of CyberShield's revenue, filed a $10 million lawsuit for negligence and immediately terminated their contract. CyberShield's management has refused to adjust the financial statements for the lawsuit, arguing it happened after the year-end. They have only provided a brief disclosure in the notes. Furthermore, management insists the company is a going concern, despite the loss of MegaBank, stating they plan to win new clients to replace the lost revenue. REQUIREMENTS: (a) Explain whether the lawsuit filed by MegaBank is an adjusting or non-adjusting subsequent event, and describe the audit procedures you should perform regarding the lawsuit. (8 marks) (b) Identify the indicators that CyberShield may not be a going concern, and describe the audit procedures you should perform to assess the going concern status. (7 marks) (c) Assuming management refuses to make any adjustments for the lawsuit and you conclude that the going concern basis is appropriate but a material uncertainty exists (which is not adequately disclosed), describe the impact on the auditor's report. (5 marks)