(A)

• Whether the supplier difficulties are temporary or permanent.
• Whether the supplier is taking action to overcome its problems (and whether Luxe Scents is considering offering financial support to the supplier).
• Legal advice taken with regards to the possibility of negotiating a break clause in the agreement with the store.
• Any costs/penalties arising from the above.
• Legal advice taken with regards to the possibility of altering the agreement to cover an alternative acceptable product or sub-leasing to a competitor to mitigate costs.
• The nature and extent of Luxe Scents’ other activities and its ability to expand trade in those areas.
• What the current level of inventories is and whether it is sufficient to tide over the company until supplies are resumed or an alternative product is found.
• Willingness of Luxe Scents’ bankers to extend/grant any overdraft facility.

(B)

Where the going concern basis of accounting is appropriate but a material uncertainty exists, the auditor must consider whether the financial statements adequately disclose the principal events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern, management’s plans to deal with those events or conditions, and disclose clearly that there is a material uncertainty related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern.

If there is adequate disclosure, then the auditor shall express an unmodified opinion but should use a Material Uncertainty Relating to Going Concern paragraph to draw attention to the relevant note in the financial statements and state that the auditor’s opinion is not modified in respect of the matter.

If there is not adequate disclosure, then the auditor shall express a qualified or adverse opinion.

Where the going concern basis of accounting is inappropriate, the auditor shall express:

• an adverse opinion if the financial statements have been prepared under the going concern basis of accounting
• an unmodified opinion if the financial statements have been prepared on an alternative acceptable basis (e.g., break-up basis) and there is adequate disclosure of this basis. An emphasis of matter paragraph may be required.