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Khoo Designs Bhd. is a kitchen manufacturing company and the company's year-end is 30 September. Encik Danish is the audit manager of Awal & Associates and have been provided with the information during the audit investigation. Recently, Khoo Designs Bhd. has been experiencing trading difficulties, as its major customer who owes them RM800,000, ceased trading. However, the balance is included in the financial statements. The sales director has left Khoo Designs Bhd. and yet to be replaced. The monthly cash flow has shown a net cash outflow for the last two months of the financial year and is forecasted as negative for the forthcoming financial year. As a result of this, the company has been slow in paying its suppliers and some are threatening legal action to recover the sums owing. Due to its financial difficulties, Khoo Designs Bhd. missed a few months of installment for loan repayment. As a result of this breach in the loan covenants, the bank has asked that the loan of RM5.5 million to be repaid in full within six months. The directors have decided to maintain the liquidity level, so no final dividend will be paid in 2019. The finance director has informed Awal & Associates that as the cash flow issues are short term he does not propose to make any amendments to the financial statements. Required: a. Determine the potential indicators that Khoo Designs Bhd. may not face any going concern issues. b. Describe the audit procedures that Awal & Associates should perform in assessing going concern issues. c. Explain Awal & Associate's responsibility for reporting on going concern to the directors of Khoo Designs Bhd. d. Asses the consequences on the audit report if the directors not used the amendments in the financial statements. e. Draft the auditors' opinion paragraph of MZ Communications Sdn. Bhd. for financial year ended 30 September 2019 .

Khoo Designs Bhd. is a kitchen manufacturing company and the company's year-end is 30 September. Encik Danish is the audit manager of Awal & Associates and have been provided with the information during the audit investigation. Recently, Khoo Designs Bhd. has been experiencing trading difficulties, as its major customer who owes them RM800,000, ceased trading. However, the balance is included in the financial statements. The sales director has left Khoo Designs Bhd. and yet to be replaced. The monthly cash flow has shown a net cash outflow for the last two months of the financial year and is forecasted as negative for the forthcoming financial year. As a result of this, the company has been slow in paying its suppliers and some are threatening legal action to recover the sums owing. Due to its financial difficulties, Khoo Designs Bhd. missed a few months of installment for loan repayment. As a result of this breach in the loan covenants, the bank has asked that the loan of RM5.5 million to be repaid in full within six months. The directors have decided to maintain the liquidity level, so no final dividend will be paid in 2019. The finance director has informed Awal & Associates that as the cash flow issues are short term he does not propose to make any amendments to the financial statements. Required: a. Determine the potential indicators that Khoo Designs Bhd. may not face any going concern issues. b. Describe the audit procedures that Awal & Associates should perform in assessing going concern issues. c. Explain Awal & Associate's responsibility for reporting on going concern to the directors of Khoo Designs Bhd. d. Asses the consequences on the audit report if the directors not used the amendments in the financial statements. e. Draft the auditors' opinion paragraph of MZ Communications Sdn. Bhd. for financial year ended 30 September 2019 .

Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter12: Intangibles
Section: Chapter Questions
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Khoo Designs Bhd. is a kitchen manufacturing company and the company's year-end is 30 September. Encik Danish is the audit manager of Awal & Associates and have been provided with the information during the audit investigation. Recently, Khoo Designs Bhd. has been experiencing trading difficulties, as its major customer who owes them RM800,000, ceased trading. However, the balance is included in the financial statements. The sales director has left Khoo Designs Bhd. and yet to be replaced. The monthly cash flow has shown a net cash outflow for the last two months of the financial year and is forecasted as negative for the forthcoming financial year. As a result of this, the company has been slow in paying its suppliers and some are threatening legal action to recover the sums owing. Due to its financial difficulties, Khoo Designs Bhd. missed a few months of installment for loan repayment. As a result of this breach in the loan covenants, the bank has asked that the loan of RM5.5 million to be repaid in full within six months. The directors have decided to maintain the liquidity level, so no final dividend will be paid in 2019. The finance director has informed Awal & Associates that as the cash flow issues are short term he does not propose to make any amendments to the financial statements. Required: a. Determine the potential indicators that Kh00 Designs Bhd. may not face any going concern issues. b. Describe the audit procedures that Awal & Associates should perform in assessing going concern issues. c. Explain Awal & Associate's responsibility for reporting on going concern to the directors of Khoo Designs Bhd. d. Asses the consequences on the audit report if the directors not used the amendments in the financial statements. e. Draft the auditors’ opinion paragraph of MZ Communications Sdn. Bhd. for financial year ended 30 September 2019 .
Transcribed Image Text:Khoo Designs Bhd. is a kitchen manufacturing company and the company's year-end is 30 September. Encik Danish is the audit manager of Awal & Associates and have been provided with the information during the audit investigation. Recently, Khoo Designs Bhd. has been experiencing trading difficulties, as its major customer who owes them RM800,000, ceased trading. However, the balance is included in the financial statements. The sales director has left Khoo Designs Bhd. and yet to be replaced. The monthly cash flow has shown a net cash outflow for the last two months of the financial year and is forecasted as negative for the forthcoming financial year. As a result of this, the company has been slow in paying its suppliers and some are threatening legal action to recover the sums owing. Due to its financial difficulties, Khoo Designs Bhd. missed a few months of installment for loan repayment. As a result of this breach in the loan covenants, the bank has asked that the loan of RM5.5 million to be repaid in full within six months. The directors have decided to maintain the liquidity level, so no final dividend will be paid in 2019. The finance director has informed Awal & Associates that as the cash flow issues are short term he does not propose to make any amendments to the financial statements. Required: a. Determine the potential indicators that Kh00 Designs Bhd. may not face any going concern issues. b. Describe the audit procedures that Awal & Associates should perform in assessing going concern issues. c. Explain Awal & Associate's responsibility for reporting on going concern to the directors of Khoo Designs Bhd. d. Asses the consequences on the audit report if the directors not used the amendments in the financial statements. e. Draft the auditors’ opinion paragraph of MZ Communications Sdn. Bhd. for financial year ended 30 September 2019 .
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