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nancial report is approved or signed is immediately followed by the annual general meeting, the interval between the two does not require any separate consideration by the auditor as it is so short.
.93 If the auditor becomes aware of a fact that materially affects the financial report, the auditor considers whether the financial report requires amendment, discusses the matter with management, and takes action appropriate in the circumstances.
AUS 708: Going Concern
.94 The size of an entity affects its ability to withstand adverse conditions. Small entities can respond quickly to exploit opportunities, but may lack reserves to sustain operations.
.95 AUS 708 requires that the auditor considers whether there are any events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern. Conditions of particular relevance to small entities include the risk that banks and other lenders may cease to support the entity, the possibility of the loss of a principal supplier, major customer or key employee, and the possible loss of the right to operate under a licence, franchise or other legal agreement.
.96 AUS 708 gives guidance on additional audit procedures that may be relevant when events or conditions have been identified that may cast significant doubt on the entity’s ability to continue as a going concern. Such procedures may include a review of documentation such as cash flows and profit forecasts. In the audit of a small entity, the auditor does not ordinarily expect to find detailed forecasts relevant to the consideration of going concern. Nevertheless, the auditor discusses with the owner-manager the going concern status of the entity and, in particular, the financing of the entity in the medium and long-term. The auditor considers these discussions in the light of corroborative documentation and the auditor’s knowledge of the business. The auditor seeks written representation from the owner-manager of the matters identified.
.97 Where the small entity is largely financed by a loan from the owner-manager, it may be important that these funds are not withdrawn. For example, the continuance of a small entity in financial difficulty may be dependent on the owner-manager subordinating his loan to the entity in favour of banks or other financial institutions. In such circumstances the auditor inspects appropriate, documentary evidence of the subordination of the owner-manager’s loan. Where an entity is dependent on additional support from the owner-manager, the auditor considers the owner-manager’s ability to meet the obligation under the support arrangement. In addition, the auditor may ask for a written representation confirming the owner-manager’s intention or understanding.
AUS 520: Management Representations
.98 Paragraph .07 of AUS 520 states that, when representations relate to matters that are material to the financial report, the auditor:
(a) Seeks corroborative audit evidence from sources inside or outside the entity;
(b) Evaluates whether the representations made by management appear reasonable and are consistent with other audit evidence obtained, including other representations; and (c) Considers whether the individuals making the representations can be expected to be well-informed on the particular matters.
.99 Paragraph .08 of AUS 520 states that representations from management cannot be a substitute for other audit evidence that the auditor expects to b