(b) Seymour offers health-related information services through a wholly-owned subsidiary, Aragon Co. Goodwill of
$1·8 million recognised on the purchase of Aragon in October 2004 is not amortised but included at cost in the
consolidated balance sheet. At 30 September 2006 Seymour’s investment in Aragon is shown at cost,
$4·5 million, in its separate financial statements.
Aragon’s draft financial statements for the year ended 30 September 2006 show a loss before taxation of
$0·6 million (2005 – $0·5 million loss) and total assets of $4·9 million (2005 – $5·7 million). The notes to
Aragon’s financial statements disclose that they have been prepared on a going concern basis that assumes that
Seymour will continue to provide financial support. (7 marks)
Required:
For each of the above issues:
(i) comment on the matters that you should consider; and
(ii) state the audit evidence that you should expect to find,
in undertaking your review of the audit working papers and financial statements of Seymour Co for the year ended
30 September 2006.
NOTE: The mark allocation is shown against each of the three issues.