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

While planning the audit of Delta Freight Ltd, the auditor learns that the company's main bank loan of $12 million is repayable within six months, and cash forecasts show a shortfall without refinancing. Which action best reflects ISA 570 (Revised) requirements at the planning/risk assessment stage?

The auditor should treat the imminent loan repayment and cash shortfall as a potential going concern risk at planning, assessing the risk of material misstatement and planning procedures to evaluate management's plans and forecasts. Going concern should not be left until completion, and verbal assurances from directors are insufficient.

  1. ADefer all going concern consideration until the completion stage, after the main fieldwork is finished
  2. BConclude the going concern basis is inappropriate and issue an adverse opinion immediately
  3. CConsider whether events or conditions cast significant doubt on going concern, treat this as a risk of material misstatement, and plan procedures such as evaluating management's plans and forecastsCorrect
  4. DAccept the directors' verbal assurance that the bank will refinance the loan

Explanation

ISA 570 requires the auditor to consider at risk assessment whether events or conditions may cast significant doubt on going concern, and to remain alert throughout the audit. The auditor should plan to evaluate management's plans and cash flow forecasts. Deferring consideration to completion is wrong because ISA 570 applies from planning onward.

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