Page 147 - CA Final PARAM Digital Book.

Part 2- SA 570

QNO Additional procedures and mitigating factor Old Course – (M19M, N19R)
90.050 TITANIUM CNO--SA570.040/SA570.060
AQP Limited is one of the prominent players in the chemicals industry. The company is a public company
domiciled in India and listed on BSE and NSE. The Company was facing extreme liquidity constraints and
there were multiple indicators that casted doubt over the company’s ability to continue as a going
concern.
The Company was led into insolvency proceedings by consortium of banks led by PNB and the NCLT
ordered the commencement of corporate insolvency process against the Company on 31 August 2017.
The company invited prospective lenders, investors and others to submit their resolution plans to the
Resolution Professional (RP) latest by 1 January 2018. The RP reviewed the resolution plans and ensured
conformity with Insolvency and Bankruptcy Code 2016. The compliant plans were presented to Committee
on Creditors (CoC) on 2 February 2018 and the resolution plan submitted by PQR Ltd. was evaluated
as highest evaluated Compliant Resolution Plan. CoC of AQP Ltd approved the Resolution Plan
submitted by PQR Ltd. on 2 March 2018. The approval of NCLT was finally obtained on 4 May 2018.
PQR Ltd submitted detailed plans and commitments as part of the resolution plan including clearance of
all outstanding debts which were leading to negative cash flows. Please suggest how would you deal
with this situation as the auditors of AQP Ltd.
Answer Part I -- Relevant Standards & Laws
▪ SA 570, Going Concern

Part II -- Requirements of Relevant Standards & Laws
➢ Significant Doubt
If events or conditions have been identified that may cast significant doubt on the entity’s ability
to continue as a going concern, the auditor shall obtain sufficient appropriate audit evidence to
determine whether or not a material uncertainty exists related to events or conditions that may
cast significant doubt on the entity’s ability to continue as a going concern (hereinafter referred to
as “material uncertainty”) through performing additional audit procedures, including consideration
of mitigating factors. These procedures shall include:

➢ Additional Audit Procedures (Compulsory)
• Management's Assessment if not prepared yet
Where management has not yet performed an assessment of the entity’s ability to continue
as a going concern, requesting management to make its assessment.

• Future Plan
Evaluating management’s plans for future actions (Introducing new products, cost cutting,
sale of assets, sale of investments, issue of shares, taking new loans etc.) in relation to its going
concern assessment, whether the outcome of these plans is likely to improve the situation.
(E.g. Will such funds be sufficient to carry on business) and whether management’s plans
are feasible in the circumstances. (can they pull off such big changes in given short span)

• Cash flow & forecast
Where the entity has prepared a cash flow forecast, and analysis of the forecast is a significant
factor in considering the future outcome of events or conditions in the evaluation of
management’s plans for future actions:
• Evaluating the reliability of the underlying data generated to prepare the forecast; and
• Determining whether there is adequate support for the assumptions underlying the
forecast.

• Events
Considering whether any additional facts or information have become available since the
date on which management made its assessment.

• Written Representation

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