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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Auditor's reports

Bora Ltd's directors are preparing financial statements for the year ended 31 December. Management, who are reluctant to extend their assessment, have considered going concern only to 30 April, four months after the reporting date. The auditor asks them to extend the assessment, but they refuse. Which is the most appropriate auditor response?

The auditor should treat the refusal as a possible limitation on scope and consider a qualified opinion or disclaimer. ISA 570 expects management to assess at least twelve months from the reporting date, and a four-month review does not satisfy this, nor can a representation letter replace evidence.

  1. AAccept the assessment, as management alone decides the length of the period
  2. BReduce the audit work and rely on the directors' representation letter
  3. CConsider the implications for the audit opinion, as the refusal is a limitation on scope, and possibly qualify or disclaimCorrect
  4. DWithdraw the going concern disclosure from the financial statements

Explanation

ISA 570 expects management's assessment to cover at least twelve months from the reporting date. If management refuses to extend or make an assessment, the auditor considers the effect on the report. This may be a scope limitation, leading to a qualified opinion or a disclaimer. Relying on representations alone would not provide sufficient evidence.

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