(a) Audit procedures
Re profit forecast

• Check the validity of the assumptions on which it was based.
• Check that accounting policies used are valid in the circumstances and consistent with the company’s usual policies.
• Check the calculations.
• Consider the likelihood of the forecast being achieved, i.e. the likely success of the repositioning.
• Consider whether Maris Vintages has the marketing/selling expertise to achieve this or, if not, whether they are planning to buy such expertise in.
• Check that the costs of the above have been built into the forecast.
• Check that future interest charges on the new borrowings have been built into the forecast.
• Consider the accuracy of any previous forecasts.
• Consider the reliability of any external advice taken.

Re cash flow projection for the year to 30 November 20X5

• Ensure that after settling liabilities the new loan will be sufficient.
• Ensure all cash requirements have been taken into account.
• Compare the cash flow forecast for the first month(s) with actual to assess accuracy.

Other

• Consider the likelihood of obtaining the new loan, including any indications given by the bank to date and any interim correspondence.
• Ask the directors whether there are any alternative sources of finance which may be available if the bank does not grant the loan. If there is, obtain confirmation from the likely source that this would be available.
• Inform the directors that unless your firm is satisfied that the required finance can be obtained, you will modify your audit opinion – some confirmation from the bank (or other lender) must be obtained.
• Consider whether even if the bank will not grant a new loan it might extend the existing loan.
• Discuss with the directors whether the annual general meeting (and therefore the signing of the auditor’s report) could be postponed until the bank has made their decision.
• Consider the position of the company if new finance is not obtained. Could the company sell surplus non-current assets? Is the existing loan secured over any of the company’s assets or by personal guarantees of the directors?
• Consider seeking advice from an insolvency practitioner.
• Consider the company’s previous experience and success in renewing finance.
• Review board minutes.

(b) Alternative audit opinions
Unmodified opinion

• If the audit firm can satisfy itself that the going concern basis of accounting is appropriate.

Material Uncertainty Related to Going Concern paragraph

• Where the going concern basis of accounting is appropriate but a material uncertainty exists and 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 and management’s plans to deal with those events or conditions, and
  • disclose clearly that there is a material uncertainty related to those events or conditions.

Qualified or adverse opinion

• Where there is not adequate disclosure of the above then the audit firm should express a qualified or adverse opinion on the grounds of a material misstatement (in respect of disclosure).

Where the going concern basis of accounting is inappropriate

• Where the going concern basis of accounting is inappropriate, the audit firm should express:
  • an adverse opinion if the financial statements have been prepared on a going concern basis
  • 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.