(c) Evidence collected by the auditor to enable a conclusion to be formed on the likelihood of the claim being successful (that is, whether a provision would be necessary according to IAS 37 Provisions, Contingent Liabilities and Contingent Assets) includes:
Evidence
(i) Obtain the written claim by the customer.
(ii) Review the controls in force over purchases and food preparation (see (b) above).
(iii)Obtain written reports concerning any inspections that had been carried out by company staff or third parties in the food store and food preparation areas.
(iv) Discuss the matter with the company’s lawyers to obtain their view on the likelihood of the claim being successful.
(v) Obtain management representations regarding the likelihood of the claim succeeding. (Tutorial note: Marks would also be available for additional points such as:
– Review of board minutes to assess management’s view of the likelihood of the claim succeeding
– Discussions with management about any previous claims and their outcome.)
Explanation
This would tell you the reason why the claim was being made and provide other relevant details, such as whether the customer dined in the restaurant or purchased carry-out food, and the date when the alleged food poisoning took place.
This would be to ensure that the company controls appeared to be effective.
This would provide evidence about any problems that had arisen affecting food quality. Discuss with management the actions that were taken to correct any problems that had arisen.
This would provide evidence from a professional third party as to the likelihood of the claim succeeding and the reasons why the lawyers had reached their conclusion.
This is internal evidence and should be approached with professional scepticism, but it would provide the auditor with the views of an informed group of people.
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