Going concern

Question 1

Going concern

Answer 1

Justification:

• overtrading
• loan covenant breached
• trading losses
• increased overdraft facility
• increased competition
• extended credit terms

procedures:

• examine profit and cash flow forecasts for 12 months after year end
• consider reasonableness of assumption
• results of sensitivity analysis
• company’s ability to meet debts
• review post year-end management accounts to assess performance
• inspect loan agreements to ensure complying with loan covenants
• inspect correspondence from hmrc
• inspect bank correspondence for deterioration in relations
• inspect board minutes for debt restructuring
• written representation on feasibility of future plans.