Fellowes and Associates Chartered Accountants is a successful mid-tier accounting firm with a large range of clients

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Fellowes and Associates Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Canada. In 2011, Fellowes and Associates gained a new client, Health Care Holdings Group (HCHG), which owns 100 percent of the following entities:
• Shady Oaks Centre, a private treatment centre
• Gardens Nursing Home Ltd., a private nursing home
• Total Laser Care Limited (TLCL), a private clinic that specializes in the laser treatment of skin defects.
Year end for all HCHG entities is June 30.
You are the audit partner reviewing the audit work papers for HCHG for the year ended June 30, 2011. Today is July 13, 2011, and the audit report is due to be signed in three weeks' time.
During your review you note that the fixed-term borrowings of HCHG totaling $75 million are approaching maturity and HCHG does not seem to have renegotiated any terms of refinancing. You are aware, from your experience with other clients, that banks are reluctant to extend financing on the same terms in the current market. The financing of HCHG was historically managed by the group's treasurer, who left the group six months ago and has not been replaced.
HCHG's financial controller, who has been with the group for nine months, has advised you that he has been busy renegotiating with some of HCHG's key suppliers who recently requested cash on delivery for all orders, rather than extending the normal credit terms.
You are also aware that a fire that occurred in the Shady Oaks cafeteria last week was not adequately covered by insurance. Fortunately, no one was seriously injured in the fire, but the cafeteria was so badly damaged that it had to be closed. When you are discussing this matter with HCHG's law firm, they reveal that the centre is unlikely to have adequate professional indemnity insurance to meet the current demands of several malpractice cases that have been brought against it in the last 12 months.
Required
(a) Are there any going concern issues for HCHG? Explain. If so, what are the mitigating circumstances?
(b) How will you recommend that the issues be handled in the financial statements and the audit report?
Audit Report
The audit report is issued by a certified public accountant who is appointed by the shareholders to provide assurance upon the truth and fairness of the financial statements prepared by the managers of the company. Audit report contains the...
Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
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Related Book For  book-img-for-question

Auditing A Practical Approach

ISBN: 978-1742165943

1st Canadian Edition

Authors: Robyn Moroney

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