Question Tag: Going Concern

Search 500 + past questions and counting.

  • Filter by Professional Bodies

  • Filter by Subject

  • Filter by Series

  • Filter by Topics

  • Filter by Levels

  • 20 Marks

AA – Mar 2025 – L2 – Q4 – Letter of Representation

Explain letter of representation, its contents, and actions if management refuses to provide it.

a) During the audit of Abako Manufacturing LTD, the audit team from Henne Frema & Associates is awaiting written representations from management. One of the key areas of concern is the completeness of the financial records provided due to high turnover of staff especially at the finance department.

Required:

i) Explain letter of representation. (2 marks)

ii) Identify EIGHT statements/issues that may form part of a letter of representation. (4 marks)

iii) Discuss TWO actions that the auditor would take if management refuse to provide the letter of representation.

b) You are part of the team auditing a client who is part of a large multinational group. During the audit, your team noted that the company is reporting adverse liquidity and solvency ratios. Also, the company was in breach of its loan covenants and recently lost a major customer.

Your team has requested that management provide forecast of financial results showing that the company will be liquid and solvent in the foreseeable future, at least 12 months from the date of reporting to support management use of the going concern assumption in the preparation of the financial statements. Your team has also requested a letter of financial support from the company’s parent company.

The team has assessed that a material uncertainty exists and the use of the going concern assumption is inappropriate in the absence of the requested mitigation information.

Required:

i) State the type of audit report to be issued should management fail to provide the requested mitigation information. (4 marks)

ii) Assess the impact of the evidence provided on the audit report. Assume a material uncertainty still exists even after providing the needed evidence but the use of the going concern is appropriate. (6 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AA – Mar 2025 – L2 – Q4 – Letter of Representation"

  • 15 Marks

AA – Nov 2024 – L2 – Q4a – Going Concern Considerations and Audit Reporting

Outline factors raising concerns about going concern and how auditors should report findings.

During the audit of Darko Retail LTD, the audit team from Zalia Audit Firm observed that management has not performed a formal assessment of the entity’s ability to continue as a going concern. It was noted that though the financial statements show a favourable financial position, the company has been facing liquidity issues and has not been able to secure funds for a significant loan due shortly after the balance sheet date.

Required:
i) Outline FOUR factors that can raise questions about the going concern of Darko Retail LTD in the absence of a formal assessment by management.

ii) Describe how the audit team should report their findings related to the going concern assumption in their auditor’s report if they conclude that a material uncertainty exists but is not adequately disclosed in the financial statements.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AA – Nov 2024 – L2 – Q4a – Going Concern Considerations and Audit Reporting"

  • 20 Marks

AAA – May 2016 – L3 – Q4 – Audit Reporting

Review the suitability of proposed audit opinions for four audit clients and suggest necessary modifications.

You are the manager responsible for four audit clients of Globe & Co, a firm of Chartered Accountants. The year-end in each case is June 30, 2015.
You are currently reviewing the audit working paper files and the audit seniors’ recommendations for the auditors’ reports. Details are as follows:

a. Red Co. Limited is a subsidiary of Yellow Holdings Plc. Serious going concern problems have been noted during this year’s audit. Red will be unable to trade for the foreseeable future unless it continues to receive financial support from the parent company. Red has received a letter of support (‘comfort letter’) from Yellow Holdings Plc.
The audit senior has suggested that due to the seriousness of the situation, the audit opinion must at least be qualified ‘except for’. (5 Marks)

b. Edo Co Plc has changed its accounting policy for goodwill during the year from amortisation over its estimated useful life to annual impairment testing. No disclosure of this change has been given in the financial statements. The carrying amount of goodwill in the statement of financial position as at June 30, 2015, is the same as at June 30, 2014, as management’s impairment test shows that it is not impaired.
The audit senior has concluded that a modification to the opinion is not required but suggests that attention can be drawn to the change by way of an emphasis of matter paragraph. (6 Marks)

c. The directors’ report of Prompt Co Limited states that investment property rental forms a major part of revenue. However, a note to the financial statements shows that property rental represents only 1.6% of total revenue for the year. The audit senior is satisfied that the revenue figures are correct.
The audit senior has noted that an unmodified opinion should be given as the audit opinion does not extend to the directors’ report. (4 Marks)

d. Audit work on the after-date bank transactions of Twinkle Co Limited has identified a transfer of cash from Star Co. Limited. The audit senior assigned to the audit of Twinkle has documented that Twinkle’s finance director explained that Star commenced trading on July 20, 2015, after being set up as a wholly-owned foreign subsidiary of Twinkle.
The audit senior has noted that although no other evidence has been obtained, an unmodified opinion is appropriate because the matter does not impact on the current year’s financial statements. (5 Marks)

Required:
For each situation, comment on the suitability or otherwise of the audit senior’s proposals for the auditors’ reports. Where you disagree, indicate what audit report modification (if any) should be given instead.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – May 2016 – L3 – Q4 – Audit Reporting"

  • 20 Marks

AAA – May 2019 – L3 – Q4 – Review of Subsequent Events and Going Concern Assumptions

Analyze the auditor's objectives, implications of going concern assumptions, directors' responsibilities, and risk assessment for going concern status.

Itanforiti Publishers Limited has been in the printing and publishing business for many years in Ibadan. The company has been performing well with a competitive advantage over many companies in the industry as a result of the engagement of a high-profile team of personnel and in-house printing of its published books.

The board of directors comprises two brothers and their wives. The older brother is the chairman, and the younger, the managing director. The fortunes of the company started dwindling in 2013 when conflicts could no longer be resolved amicably among the members of the board of directors.

The chairman, being a majority shareholder, assumed executive powers by combining the roles hitherto played by the managing director with his own as executive chairman in 2015. Governance of the company became unsettled, and key staff of the organization started resigning in turn.

In 2016, the financial reports of the company revealed its inability to pay creditors, and the supply of raw materials became irregular. In addition, the level of receivables became too high with a significant figure of doubtful and irrecoverable debts.

Your firm acts as auditors to the company, and you have been presented with the financial statements for the year ended 31st December 2017, for audit. The financial statements were prepared on a going concern basis.

Required:
a. Identify and explain the objectives of the auditor in the area of going concern in accordance with International Standards on Auditing (ISA 570). (5 Marks)
b. Explain the going concern assumption and the implications for the financial statements if the entity is not a going concern. (5 Marks)
c. Explain the going concern duties of the directors. (3 Marks)
d. Evaluate the risk assessment procedures to be performed by the auditor on the going concern status of the entity. (ISA 570). (7 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – May 2019 – L3 – Q4 – Review of Subsequent Events and Going Concern Assumptions"

  • 20 Marks

AAA – Nov 2014 – L3 – SB – Q3 – Review of Subsequent Events and Going Concern Assumptions

Identify going concern risks for Woes Limited and outline post-reporting date audit matters to assess its ability to continue as a going concern.

You are responsible for the audit of Woes Limited for the year-ended 31 December 2013. The principal activity of Woes Ltd is the provision of high-quality packaging services for manufacturing companies. The company was established three years ago and has significantly exceeded its growth targets in each of those years.

Historically, the packaging process was labour-intensive, but in September 2013, in an effort to reduce labour costs and increase efficiency, the company invested in an enhanced automated packing system. The investment was funded by a loan repayable in monthly instalments over four years. The loan covenant agreement includes a term specifying that the company’s debt: equity ratio should not exceed 1:1.

A comparison of the draft accounts for the year ended 31 December 2013 with the previous year indicates a significant increase in revenue with a small increase in profit. The company is currently trading in excess of its overdraft limit and is negotiating an increase in its facility with the bank. Management has prepared, in support of its negotiations, profit and cash flow forecasts based on the assumptions that the anticipated increase in efficiency, including a reduction in labour costs, will be achieved.

The company struggles to meet the weekly wage bill and has fallen behind in its payments to the tax authorities. It has also failed to comply with the terms of the lease in respect of the factory premises and has not paid the last three months’ instalments.

Required:

a. Identify and explain, from the information provided above, factors which indicate that Woes Ltd may not be a going concern. (10 Marks)
b. Outline the matters to which you would direct your attention in the period after the reporting date to determine whether Woes Ltd can continue as a going concern for the foreseeable future. (10 Marks)

(Total: 20 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – Nov 2014 – L3 – SB – Q3 – Review of Subsequent Events and Going Concern Assumptions"

  • 20 Marks

AAA – May 2021 – L3 – Q6 – Review of Subsequent Events and Going Concern Assumptions

Evaluation of going concern issues at Wazobia Nigeria Limited and audit procedures to address identified risks.

Wazobia Nigeria Limited is a manufacturer of corrugated zinc roofs. Due to the economic recession, revenue continued to decline each year for the past three years. You are aware that the company had only N300,000 in cash at the year end. Extracts from the draft financial statements and other relevant information are given below.

Additional information:
(i) The bank loan was obtained in 2016 when the company started recording losses. The collateral for the loan is a fixed and floating charge on the assets of the company to the tune of the loan balance. The first tranche of repayment of the loan is due in 2019 and the amount repayable is N300 million.

(ii) Wazobia renegotiated its credit line with a major supplier and extended payment terms from 60 days to 90 days in order to improve working capital.

(iii) The terms for accessing the undrawn facilities stipulate that the company must meet certain covenants, including that interest cover is maintained at 2:1 and the ratio of bank loan to total assets does not exceed 1:1.

(iv) The contingent liability relates to litigation against the company by one of its customers for an alleged breach of contract to supply roofing sheets based on agreed specifications.

Required:
(a) Identify and explain the matters which may cast significant doubt on the company’s ability to continue as a going concern in the foreseeable future. (10 Marks)
(b) Recommend the appropriate audit procedures to be performed to adequately address the going concern matters identified. (10 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – May 2021 – L3 – Q6 – Review of Subsequent Events and Going Concern Assumptions"

  • 9 Marks

CR – Nov 2014 – L3 – SC – Q6b – Introduction to Corporate Reporting

Evaluate Luck & Co's financial position and recommend restructuring options to address going concern threats.

Scenario:
Luck & Co. has been making losses over the last few years. Its statement of financial position at 31 December, 2013, showed the following:

Statement of Financial Position as at 31 December, 2013

Assets N
Property, plant, and equipment 80,000
Inventory 20,000
Receivables 40,000
Total Assets 140,000
Equity and Liabilities N
Ordinary Capital 100,000
Retained Earnings (140,000)
Secured Loan Stock 100,000
Payables 80,000
Total Equity & Liabilities 140,000

On liquidation, the assets would realise the following:

Assets N
Property, plant, and equipment 30,000
Inventory 12,000
Receivables 36,000
Total Realisable Value 78,000

If the company continues to trade for the next four years, profit after charging N20,000 per annum as depreciation on the property, plant and equipment would be as follows:

Year Profit (N)
2014 4,000
2015 20,000
2016 26,000
2017 28,000
Total 78,000

Assume that there would be no surplus cash to settle the payables and loan stock holders until after four years when inventory and receivables could be realised at their book values.

Required:

Evaluate the financials and advise the management of Luck & Co on the options available to them and redraft the statement of financial position of Luck & Co after the exercise. (9 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "CR – Nov 2014 – L3 – SC – Q6b – Introduction to Corporate Reporting"

  • 6 Marks

CR – Nov 2014 – L3 – SC – Q6a – Introduction to Corporate Reporting

Evaluate factors indicating going concern threats and propose financial restructuring solutions.

An entity is normally viewed as a going concern. It is assumed that the entity has neither the intention nor the desire of liquidation or of curtailing materially the scale of its operations.

However, if the going concern is threatened, the financial statements would be prepared on a different basis.

Required:

State the factors that indicate an organisation may no longer be a going concern under the following categories:
(i) Financial (ii) Operational (iii) Legal or regulatory (6 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "CR – Nov 2014 – L3 – SC – Q6a – Introduction to Corporate Reporting"

  • 15 Marks

AAA – Nov 2013 – L3 – SB – Q5 – Review of Subsequent Events and Going Concern Assumptions

Outline audit procedures to identify material subsequent events and explain the purpose and importance of subsequent events review.

You have just concluded the audit of Roico Limited for the year ended 31 December, 2012. During the review of the working paper file, the partner in charge discovered that no information is available on activities after year-end. The partner instructed the team leader to carry out a review of the company’s activities after year-end. The team leader was not comfortable with the instruction and wants to know why it is necessary to examine accounting information relating to the next accounting period.

You are required to:

(a) Enumerate the audit procedures which would be carried out in order to identify any material subsequent events. (10 Marks)

(b) Discuss the purpose and importance of subsequent events review. (5 Marks)

(Total: 15 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – Nov 2013 – L3 – SB – Q5 – Review of Subsequent Events and Going Concern Assumptions"

  • 8 Marks

CR – May 2023 – L3 – Q5a – Emerging Trends in Corporate Reporting

Discuss four financial reporting issues companies should consider due to COVID-19.

Most regulatory authorities in Nigeria, such as the Securities and Exchange Commission (SEC), Central Bank of Nigeria (CBN), and Federal Inland and State Internal Revenue Services, issued conditional relief for meeting reporting deadlines for filing annual and other returns required by law during the pandemic.

However, companies still need to monitor further reporting updates and evaluate the current and potential effects that COVID-19 could have on their financial reporting.

Required:

Discuss FOUR financial reporting issues that should be considered by companies as a consequence of COVID-19. (8 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "CR – May 2023 – L3 – Q5a – Emerging Trends in Corporate Reporting"

  • 20 Marks

AA – Mar 2025 – L2 – Q4 – Letter of Representation

Explain letter of representation, its contents, and actions if management refuses to provide it.

a) During the audit of Abako Manufacturing LTD, the audit team from Henne Frema & Associates is awaiting written representations from management. One of the key areas of concern is the completeness of the financial records provided due to high turnover of staff especially at the finance department.

Required:

i) Explain letter of representation. (2 marks)

ii) Identify EIGHT statements/issues that may form part of a letter of representation. (4 marks)

iii) Discuss TWO actions that the auditor would take if management refuse to provide the letter of representation.

b) You are part of the team auditing a client who is part of a large multinational group. During the audit, your team noted that the company is reporting adverse liquidity and solvency ratios. Also, the company was in breach of its loan covenants and recently lost a major customer.

Your team has requested that management provide forecast of financial results showing that the company will be liquid and solvent in the foreseeable future, at least 12 months from the date of reporting to support management use of the going concern assumption in the preparation of the financial statements. Your team has also requested a letter of financial support from the company’s parent company.

The team has assessed that a material uncertainty exists and the use of the going concern assumption is inappropriate in the absence of the requested mitigation information.

Required:

i) State the type of audit report to be issued should management fail to provide the requested mitigation information. (4 marks)

ii) Assess the impact of the evidence provided on the audit report. Assume a material uncertainty still exists even after providing the needed evidence but the use of the going concern is appropriate. (6 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AA – Mar 2025 – L2 – Q4 – Letter of Representation"

  • 15 Marks

AA – Nov 2024 – L2 – Q4a – Going Concern Considerations and Audit Reporting

Outline factors raising concerns about going concern and how auditors should report findings.

During the audit of Darko Retail LTD, the audit team from Zalia Audit Firm observed that management has not performed a formal assessment of the entity’s ability to continue as a going concern. It was noted that though the financial statements show a favourable financial position, the company has been facing liquidity issues and has not been able to secure funds for a significant loan due shortly after the balance sheet date.

Required:
i) Outline FOUR factors that can raise questions about the going concern of Darko Retail LTD in the absence of a formal assessment by management.

ii) Describe how the audit team should report their findings related to the going concern assumption in their auditor’s report if they conclude that a material uncertainty exists but is not adequately disclosed in the financial statements.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AA – Nov 2024 – L2 – Q4a – Going Concern Considerations and Audit Reporting"

  • 20 Marks

AAA – May 2016 – L3 – Q4 – Audit Reporting

Review the suitability of proposed audit opinions for four audit clients and suggest necessary modifications.

You are the manager responsible for four audit clients of Globe & Co, a firm of Chartered Accountants. The year-end in each case is June 30, 2015.
You are currently reviewing the audit working paper files and the audit seniors’ recommendations for the auditors’ reports. Details are as follows:

a. Red Co. Limited is a subsidiary of Yellow Holdings Plc. Serious going concern problems have been noted during this year’s audit. Red will be unable to trade for the foreseeable future unless it continues to receive financial support from the parent company. Red has received a letter of support (‘comfort letter’) from Yellow Holdings Plc.
The audit senior has suggested that due to the seriousness of the situation, the audit opinion must at least be qualified ‘except for’. (5 Marks)

b. Edo Co Plc has changed its accounting policy for goodwill during the year from amortisation over its estimated useful life to annual impairment testing. No disclosure of this change has been given in the financial statements. The carrying amount of goodwill in the statement of financial position as at June 30, 2015, is the same as at June 30, 2014, as management’s impairment test shows that it is not impaired.
The audit senior has concluded that a modification to the opinion is not required but suggests that attention can be drawn to the change by way of an emphasis of matter paragraph. (6 Marks)

c. The directors’ report of Prompt Co Limited states that investment property rental forms a major part of revenue. However, a note to the financial statements shows that property rental represents only 1.6% of total revenue for the year. The audit senior is satisfied that the revenue figures are correct.
The audit senior has noted that an unmodified opinion should be given as the audit opinion does not extend to the directors’ report. (4 Marks)

d. Audit work on the after-date bank transactions of Twinkle Co Limited has identified a transfer of cash from Star Co. Limited. The audit senior assigned to the audit of Twinkle has documented that Twinkle’s finance director explained that Star commenced trading on July 20, 2015, after being set up as a wholly-owned foreign subsidiary of Twinkle.
The audit senior has noted that although no other evidence has been obtained, an unmodified opinion is appropriate because the matter does not impact on the current year’s financial statements. (5 Marks)

Required:
For each situation, comment on the suitability or otherwise of the audit senior’s proposals for the auditors’ reports. Where you disagree, indicate what audit report modification (if any) should be given instead.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – May 2016 – L3 – Q4 – Audit Reporting"

  • 20 Marks

AAA – May 2019 – L3 – Q4 – Review of Subsequent Events and Going Concern Assumptions

Analyze the auditor's objectives, implications of going concern assumptions, directors' responsibilities, and risk assessment for going concern status.

Itanforiti Publishers Limited has been in the printing and publishing business for many years in Ibadan. The company has been performing well with a competitive advantage over many companies in the industry as a result of the engagement of a high-profile team of personnel and in-house printing of its published books.

The board of directors comprises two brothers and their wives. The older brother is the chairman, and the younger, the managing director. The fortunes of the company started dwindling in 2013 when conflicts could no longer be resolved amicably among the members of the board of directors.

The chairman, being a majority shareholder, assumed executive powers by combining the roles hitherto played by the managing director with his own as executive chairman in 2015. Governance of the company became unsettled, and key staff of the organization started resigning in turn.

In 2016, the financial reports of the company revealed its inability to pay creditors, and the supply of raw materials became irregular. In addition, the level of receivables became too high with a significant figure of doubtful and irrecoverable debts.

Your firm acts as auditors to the company, and you have been presented with the financial statements for the year ended 31st December 2017, for audit. The financial statements were prepared on a going concern basis.

Required:
a. Identify and explain the objectives of the auditor in the area of going concern in accordance with International Standards on Auditing (ISA 570). (5 Marks)
b. Explain the going concern assumption and the implications for the financial statements if the entity is not a going concern. (5 Marks)
c. Explain the going concern duties of the directors. (3 Marks)
d. Evaluate the risk assessment procedures to be performed by the auditor on the going concern status of the entity. (ISA 570). (7 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – May 2019 – L3 – Q4 – Review of Subsequent Events and Going Concern Assumptions"

  • 20 Marks

AAA – Nov 2014 – L3 – SB – Q3 – Review of Subsequent Events and Going Concern Assumptions

Identify going concern risks for Woes Limited and outline post-reporting date audit matters to assess its ability to continue as a going concern.

You are responsible for the audit of Woes Limited for the year-ended 31 December 2013. The principal activity of Woes Ltd is the provision of high-quality packaging services for manufacturing companies. The company was established three years ago and has significantly exceeded its growth targets in each of those years.

Historically, the packaging process was labour-intensive, but in September 2013, in an effort to reduce labour costs and increase efficiency, the company invested in an enhanced automated packing system. The investment was funded by a loan repayable in monthly instalments over four years. The loan covenant agreement includes a term specifying that the company’s debt: equity ratio should not exceed 1:1.

A comparison of the draft accounts for the year ended 31 December 2013 with the previous year indicates a significant increase in revenue with a small increase in profit. The company is currently trading in excess of its overdraft limit and is negotiating an increase in its facility with the bank. Management has prepared, in support of its negotiations, profit and cash flow forecasts based on the assumptions that the anticipated increase in efficiency, including a reduction in labour costs, will be achieved.

The company struggles to meet the weekly wage bill and has fallen behind in its payments to the tax authorities. It has also failed to comply with the terms of the lease in respect of the factory premises and has not paid the last three months’ instalments.

Required:

a. Identify and explain, from the information provided above, factors which indicate that Woes Ltd may not be a going concern. (10 Marks)
b. Outline the matters to which you would direct your attention in the period after the reporting date to determine whether Woes Ltd can continue as a going concern for the foreseeable future. (10 Marks)

(Total: 20 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – Nov 2014 – L3 – SB – Q3 – Review of Subsequent Events and Going Concern Assumptions"

  • 20 Marks

AAA – May 2021 – L3 – Q6 – Review of Subsequent Events and Going Concern Assumptions

Evaluation of going concern issues at Wazobia Nigeria Limited and audit procedures to address identified risks.

Wazobia Nigeria Limited is a manufacturer of corrugated zinc roofs. Due to the economic recession, revenue continued to decline each year for the past three years. You are aware that the company had only N300,000 in cash at the year end. Extracts from the draft financial statements and other relevant information are given below.

Additional information:
(i) The bank loan was obtained in 2016 when the company started recording losses. The collateral for the loan is a fixed and floating charge on the assets of the company to the tune of the loan balance. The first tranche of repayment of the loan is due in 2019 and the amount repayable is N300 million.

(ii) Wazobia renegotiated its credit line with a major supplier and extended payment terms from 60 days to 90 days in order to improve working capital.

(iii) The terms for accessing the undrawn facilities stipulate that the company must meet certain covenants, including that interest cover is maintained at 2:1 and the ratio of bank loan to total assets does not exceed 1:1.

(iv) The contingent liability relates to litigation against the company by one of its customers for an alleged breach of contract to supply roofing sheets based on agreed specifications.

Required:
(a) Identify and explain the matters which may cast significant doubt on the company’s ability to continue as a going concern in the foreseeable future. (10 Marks)
(b) Recommend the appropriate audit procedures to be performed to adequately address the going concern matters identified. (10 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – May 2021 – L3 – Q6 – Review of Subsequent Events and Going Concern Assumptions"

  • 9 Marks

CR – Nov 2014 – L3 – SC – Q6b – Introduction to Corporate Reporting

Evaluate Luck & Co's financial position and recommend restructuring options to address going concern threats.

Scenario:
Luck & Co. has been making losses over the last few years. Its statement of financial position at 31 December, 2013, showed the following:

Statement of Financial Position as at 31 December, 2013

Assets N
Property, plant, and equipment 80,000
Inventory 20,000
Receivables 40,000
Total Assets 140,000
Equity and Liabilities N
Ordinary Capital 100,000
Retained Earnings (140,000)
Secured Loan Stock 100,000
Payables 80,000
Total Equity & Liabilities 140,000

On liquidation, the assets would realise the following:

Assets N
Property, plant, and equipment 30,000
Inventory 12,000
Receivables 36,000
Total Realisable Value 78,000

If the company continues to trade for the next four years, profit after charging N20,000 per annum as depreciation on the property, plant and equipment would be as follows:

Year Profit (N)
2014 4,000
2015 20,000
2016 26,000
2017 28,000
Total 78,000

Assume that there would be no surplus cash to settle the payables and loan stock holders until after four years when inventory and receivables could be realised at their book values.

Required:

Evaluate the financials and advise the management of Luck & Co on the options available to them and redraft the statement of financial position of Luck & Co after the exercise. (9 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "CR – Nov 2014 – L3 – SC – Q6b – Introduction to Corporate Reporting"

  • 6 Marks

CR – Nov 2014 – L3 – SC – Q6a – Introduction to Corporate Reporting

Evaluate factors indicating going concern threats and propose financial restructuring solutions.

An entity is normally viewed as a going concern. It is assumed that the entity has neither the intention nor the desire of liquidation or of curtailing materially the scale of its operations.

However, if the going concern is threatened, the financial statements would be prepared on a different basis.

Required:

State the factors that indicate an organisation may no longer be a going concern under the following categories:
(i) Financial (ii) Operational (iii) Legal or regulatory (6 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "CR – Nov 2014 – L3 – SC – Q6a – Introduction to Corporate Reporting"

  • 15 Marks

AAA – Nov 2013 – L3 – SB – Q5 – Review of Subsequent Events and Going Concern Assumptions

Outline audit procedures to identify material subsequent events and explain the purpose and importance of subsequent events review.

You have just concluded the audit of Roico Limited for the year ended 31 December, 2012. During the review of the working paper file, the partner in charge discovered that no information is available on activities after year-end. The partner instructed the team leader to carry out a review of the company’s activities after year-end. The team leader was not comfortable with the instruction and wants to know why it is necessary to examine accounting information relating to the next accounting period.

You are required to:

(a) Enumerate the audit procedures which would be carried out in order to identify any material subsequent events. (10 Marks)

(b) Discuss the purpose and importance of subsequent events review. (5 Marks)

(Total: 15 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – Nov 2013 – L3 – SB – Q5 – Review of Subsequent Events and Going Concern Assumptions"

  • 8 Marks

CR – May 2023 – L3 – Q5a – Emerging Trends in Corporate Reporting

Discuss four financial reporting issues companies should consider due to COVID-19.

Most regulatory authorities in Nigeria, such as the Securities and Exchange Commission (SEC), Central Bank of Nigeria (CBN), and Federal Inland and State Internal Revenue Services, issued conditional relief for meeting reporting deadlines for filing annual and other returns required by law during the pandemic.

However, companies still need to monitor further reporting updates and evaluate the current and potential effects that COVID-19 could have on their financial reporting.

Required:

Discuss FOUR financial reporting issues that should be considered by companies as a consequence of COVID-19. (8 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "CR – May 2023 – L3 – Q5a – Emerging Trends in Corporate Reporting"

knowsia

Elevate your professional expertise across key business domains with our comprehensive training programs

Our offerings

Contact Info

  • +233203701923
    +233543919232
  • info@knowsia.com

Customer

Get In Touch

Follow us on our social media and get daily updates.

Facebook-f Twitter Linkedin-in Envelope
error: Content is protected !!
Oops!

This feature is only available in selected plans.

Click here to view all plans

Click on the login button below to login if you’re already subscribed to a plan or click on the upgrade button below to upgrade your current plan.

Login
Upgrade Plan

If you’re not subscribed to a plan, click on the button below to choose a plan

Subscribe to a plan