Assuming there are no valid mitigating factors present to support the presentation of the financial statement on the going-concern basis and the fact
that management still intends on presenting the financial statements on the going-concern basis, discuss the effect of management’s refusal to adjust
the financial statements on the audit report of Eco-Muhle for the year ended 31 July 2020.
The opinion and basis of opinion paragraphs are NOT required.

 

Transcribed Image Text:

SUBSEQUENT EVENTS, GOING CONCERN AND AUDIT REPORTING (Required part 3) You are at the final stage of the audit and are satisfied that all material differences identified during the audit have been corrected by management. However, while reviewing minutes of director's meetings held during August 2020, you came across discussions concerning a notification received from the Department of Health. The directors' noted new black economic empowerment requirements for companies that tender to state hospitals and pharmacies applicable from 1 September 2020. Due to the technicalities required by the new tender requirements, the directors predicted that it can take the company a minimum of 12 months to meet the requirements but an in-depth evaluation regarding this aspect still needs to be performed. State hospitals and pharmacies comprise a significant component of Eco-Muhle's customer base for many years and the company cannot afford to lose them. The directors resolved that as this matter is only applicable in the new financial year, it is still appropriate to present the annual financial statements on the going-concern basis as at 31 July 2020. SUBSEQUENT EVENTS, GOING CONCERN AND AUDIT REPORTING (Required part 3) You are at the final stage of the audit and are satisfied that all material differences identified during the audit have been corrected by management. However, while reviewing minutes of director's meetings held during August 2020, you came across discussions concerning a notification received from the Department of Health. The directors' noted new black economic empowerment requirements for companies that tender to state hospitals and pharmacies applicable from 1 September 2020. Due to the technicalities required by the new tender requirements, the directors predicted that it can take the company a minimum of 12 months to meet the requirements but an in-depth evaluation regarding this aspect still needs to be performed. State hospitals and pharmacies comprise a significant component of Eco-Muhle's customer base for many years and the company cannot afford to lose them. The directors resolved that as this matter is only applicable in the new financial year, it is still appropriate to present the annual financial statements on the going-concern basis as at 31 July 2020.

Answer rating: 100% (QA)

The refusal of management to adjust the financial statements to reflect the ... View the full answer