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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Planning, materiality and assessing the risk of material misstatement

At the planning stage of the audit of Calder Holdings, the auditor discovers management has an informal plan to sell a major property to repay debt, though no buyer has been found. Under ISA 570 (Revised), what should the auditor do regarding this plan?

The auditor must evaluate whether management's plan to sell the property is feasible and whether it is likely to improve the going concern position. A plan without a buyer is not automatically sufficient, nor irrelevant, so the auditor obtains evidence rather than simply relying on management's intentions.

  1. AAccept the plan as sufficient evidence, because management is responsible for going concern
  2. BEvaluate whether management's plan is feasible in the circumstances and whether its outcome is likely to improve the situationCorrect
  3. CIgnore the plan until a buyer is found, since uncertain plans have no audit relevance
  4. DRequire the directors to sign a guarantee of the property sale

Explanation

ISA 570 requires the auditor to evaluate management's plans for future actions, including whether they are feasible and whether the outcome is likely to improve the situation. An unsecured plan with no buyer may not be feasible, so evidence is needed. Accepting the plan on management's word, as in the first option, would fail to gather sufficient appropriate evidence.

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