(a) Al Zakir Corporation is the manufacturer of Ceramic tiles and engaging in selling of tiles in the local market of the Sultanate of Oman. Due to cut-throat competition and less demand for the product the corporation’s profit started decreasing. Because of the impact of this situation, many similar type of organizations have started the process of export of their product. Al Zakir Corporation had incurred a net loss of OMR 67,000 for the year ended 31st December, 2015. During the year Al Zakir Corporation had an aggregate value of current assets for OMR 6,500,000 and the value of aggregate current liabilities were for OMR 8,300,000. At this situation government policies have changed and there were favorable to the ceramic industry Due to this effect, the corporation was expecting profits in the forthcoming years. The shareholders of Al Zakir Corporation have arranged an alternative additional source of finance for the corporation’s expansion plans and to support its working needs for the next twelve months.

Case (b) Abbay Corporation is a manufacturer of X ray screening equipment and the products are sold to airports all over the world. The following activities were gone on during the year 2018:

• In the beginning of the year 2018 the useful life of the plant and equipment in the factory was recalculated and earlier the useful life was seven years, which was changed in to four years after the recalculation
• The finance manager announced a new incentive scheme because of the increased sales in the year 2018. With the effect of this announcement, the employees were paid a bonus of OMR 4,000,000 as compared to bonus paid in the 2017 was OMR 770,000.
• The corporation earned a profit of OMR 450,000 from the nationalization of land.
• The corporation has provided a contribution of OMR 2,250,000 to a non-profit organization through the corporation’s voluntary foundation which was formed in the year 2012.

Required:

Case (a) On the role of an internal auditor provide your information to Al Zakir Corporation about the decision of preparation of financial statements under the going concern assumption.

Case (b) Assess the above activities of Abbay Corporation and on the role of an internal auditor justify by your explanation about the changes occurred on profit or loss by affecting these activities. 

Answer rating: 100% (QA)

aThe going concern principle allows the company to defer some of its prepaid expenses until future a... View the full answer