You are appointed audit senior of Ponga & Co for the audit of Going Away Ltd, an appliance manufacturer with its year end of 31 July 2019. The following are some of the notes in respect of a meeting between Ponga and Going Away: 1) One of Going Away’s significant customer has stopped trading. This customer owes $0.7 m to Going Away with an unlikely chance of payment; however the balance is included within the financial statements extracts below. 2) The sales director has recently left Going Away and has yet to be replaced. 3) The monthly cash flow has shown a net cash outflow for the last two months of the financial year and is forecast 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. 4) Due to its financial difficulties, Going Away missed a loan repayment and, as a result of this breach in the loan covenants, the bank has asked that the loan of $4.8 be repaid in full within six months. The directors have decided that in order to conserve cash, no final dividend will be paid in 2019. Required: a) Referring to the data above, describe the audit procedures that you should perform in assessing whether or not Going Away is a going concern. b) Having performed the going concern audit procedures, you have serious concerns in relation to the going concern status of Going Away. The finance director has informed you that as the cash flow issues are short term he does not propose to make any amendments to the financial statements. State Ponga & Co’s responsibility for reporting on going concern to the directors of Going Away Ltd.
You are appointed audit senior of Ponga & Co for the audit of Going Away Ltd, an appliance
manufacturer with its year end of 31 July 2019. The following are some of the notes in
respect of a meeting between Ponga and Going Away:
1) One of Going Away’s significant customer has stopped trading. This customer owes
$0.7 m to Going Away with an unlikely chance of payment; however the balance is
included within the financial statements extracts below.
2) The sales director has recently left Going Away and has yet to be replaced.
3) The monthly
financial year and is
result of this, the company has been slow in paying its suppliers and some are
threatening legal action to recover the sums owing.
4) Due to its financial difficulties, Going Away missed a loan repayment and, as a result
of this breach in the loan covenants, the bank has asked that the loan of $4.8 be repaid
in full within six months. The directors have decided that in order to conserve cash,
no final dividend will be paid in 2019.
Required:
a) Referring to the data above, describe the
assessing whether or not Going Away is a going concern.
b) Having performed the going concern audit procedures, you have serious concerns in
relation to the going concern status of Going Away. The finance director has informed you
that as the cash flow issues are short term he does not propose to make any amendments to
the financial statements. State Ponga & Co’s responsibility for reporting on going concern to
the directors of Going Away Ltd.
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