You are the audit senior of a manufacturing company, Hello Cannot Sdn Bhd. You have noted certain
Question:
You are the audit senior of a manufacturing company, Hello Cannot Sdn Bhd. You have noted certain conditions that gives you significant doubt on the company's ability to continue as a going concern. You met with the Chief Financial Officer (CFO) of the company to discuss the issue and expressed your decision that at least an emphasis of matter paragraph on the issue of going concern in the audit report is inevitable.
The CFO disagreed with your opinion and shared with you the management's plan to deal with the potential going-concern uncertainty. The plan mainly constitutes the following measures:
Hello Cannot Sdn Bhd is guaranteed a continuous financial support by the parent company, GSC Bhd.
It has recently re-structure its borrowing facilities.
The management has plans to cut operation cost by reducing overheads and administrative expenses.
The management had decided to discontinue a non profitable product line.
The management has plans to increase equity and;
The management has a positive revenue forecast in the next year.
Required
(a) Explain the audit procedures that should be performed to support the reliability of the CFO's measures to alleviate the going concern issues of the company and assess the viability of the above measures being taken by the management.
(b) Discuss the matters you would further investigate with the management arising from review of the forecast.