going concern

Question 1

what is going concern

Answer 1

the assumption the entity will continue in business for the foreseeable future

Question 2

how long is the foreseeable future

Answer 2

minimum of 12 months from date of FS

Question 3

when should a company not prepare FS on GC basis

Answer 3

unless they intend to liquidate or cease trading

Question 4

8 indications of GC

Answer 4

• net CL
• neg cash flow
• borrowing facilities not agreed
• inability to obtain credit
• sale of NCA to find operating costs
• loss of key staff
• over reliance on small numbers of customers / products
• increasing competition

Question 5

1st step in audit procedure

Answer 5

• analyse and discuss cashflow, profit and other relevant forecasts with management

Question 6

2nd step in audit procedure

Answer 6

• review terms on debentures and loan agreements, determine whether any have been breached

Question 7

3rd step AP

Answer 7

read minutes of SH meetings, BoD and committees for reference to financing difficulties

Question 8

4th step AP

Answer 8

enquire entities lawyer regarding existence of litigation and claims, and the reasonableness of managements assessments and their outcomes

Question 9

5th step AP

Answer 9

review events after YE to identify those that affect entities ability to continue as a GC

Question 10

6th step AP

Answer 10

review correspondence with customers for evidence of disputes, can impact recoverability of debts or affect future sales

Question 11

7th step AP

Answer 11

review correspondence wi suppliers for evidence of issues regarding payment, affect abilty to obtain supplies or credit

Question 12

8th step AP

Answer 12

review correspondence with bank for indication that bank loan or overdraft may be recalled