Part (a):

• Audit Procedures for Going Concern:
  • Review Cash Flow Projections: Analyze cash flow forecasts prepared by management and assess the reliability of underlying assumptions.
  • Debt Covenants Compliance: Check the company’s adherence to debt covenants and assess the risk of default that could worsen financial instability.
  • Review Post-Year-End Events: Inspect significant transactions or events after the reporting date for indicators of improved or further deteriorated financial conditions.
  • Assess Management’s Plans: Evaluate the feasibility of management’s plans to mitigate financial issues, such as raising additional capital or asset sales.

Part (b):

• Steps if Going Concern is Considered Invalid by the Auditor:
  • Inquire Further from Management: Obtain more evidence and management explanations supporting their assumptions for going concern status.
  • Request Written Representation: Ask management for a formal statement confirming their rationale and basis for asserting going concern.
  • Increase Disclosure Requirements: Recommend additional disclosures about the going concern risk in the financial statements for transparency.
  • Modify the Audit Report: If concerns remain, consider qualifying the audit report or issuing a disclaimer based on the severity of going concern doubts.

Explanation:

• Explanation for Procedures: These procedures help the audit team assess whether the company can sustain its operations amid financial distress and uncertainties, providing a reliable basis for going concern.
• Explanation for Steps: The auditor takes these steps to address discrepancies with management’s assessment of going concern, ensuring transparency and compliance with audit standards.