ACCA AAA ^INT Syllabus F. Other Assignments - Describe substantive procedures on socio-environmental matters - Notes ^{3 / 3}

Examples of the impact of social and environmental matters on financial statements

• Provisions (for example, for site restoration, fines/compensation payments)

• Contingent liabilities (for example, in relation to pending legal action)

• Asset values (issues may impact on impairment or purchased goodwill/products)

Substantive Procedures: Asset Valuation

The assets might be impaired:

Remember you need to do an impairment review if there's a change in the environment (social / regulatory etc) so...

1. Review board minutes for indications of regulations change

2. Review trade magazines also for any such changes

3. Discuss with management also

If a change has happened you need to see if the directors have done the impairment review already (like they should have)

If not - ask why not. A refusal to do so it will affect the audit report

If so - and the valuation of the asset has been adjusted then just audit the impairment review.

Substantive Procedures: Provisions

Remember a Provision should be recognised when:

1. There's an obligation (legal or constructive)

2. There's a probable outflow

3. a Reliable Estimate can be made

Environment policy = To clean up contamination, therefore create a provision for any environmental damage

If the directors have already made the Provision - audit the amounts and disclosures by reviewing correspondence with regulators and review the regulations yourself

Substantive Procedures: Contingent Liabilities

Remember this is a POSSIBLE obligation only, or NOT PROBABLE outflow or NOT able to be estimated reliably

The general audit procedures to establish if contingent liabilities exist are the same as the ones for provisions, given above.