(b) Audit procedures regarding going concern
– Obtain a copy of the cash flow forecast and discuss the results of this with the directors.
– Discuss with the directors their view on whether Smithson can continue as a going concern. Ask for their reasons and
try and determine whether these are accurate.
– Enquire of the directors whether they have considered any other forms of finance for Smithson to make up the cash
shortfall identified in the cash flow forecast.
– Obtain a copy of any interim financial statements of Smithson to determine the level of sales/income after the year-end
and whether this matches the cash flow forecast.
– Enquire about the possible lack of capital investment within Smithson identified by the employee leaving. Review current
levels of non-current assets with similar companies and review purchase policy with the directors.
– Consider the extent to which Smithson relied on the senior employee who recently left the company. Ask the human
resources department whether the employee will be replaced and if so how soon.
– Obtain a solicitor’s letter and review to identify any legal claims against Smithson related to below standard services
being provided to clients. Where possible, consider the financial impact on Smithson and whether insurance is available
to mitigate any claims.
– Review Smithson’s order book and client lists to try and determine the value of future orders compared to previous years.
– Review the bank letter to determine the extent of any bank loans and whether repayments due in the next 12 months
can be made without further borrowing.
– Review other events after the end of the financial year and determine whether these have an impact on Smithson.
– Obtain a letter of representation point confirming the directors’ opinion that Smithson is a going concern. |
