The directors are planning to diversify the business by introducing, in September 2021, a gourmet food...

    

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The directors are planning to diversify the business by introducing, in September 2021, a gourmet food hall and gift shop into each garden centre to take advantage of the increasing gardening craze on social media. In order to fund the proposed diversification, a new loan application has been submitted to the company's bank. The bank wishes to examine the audited financial statements for the year ended 31 March 2021 together with the profit and cash flow forecasts in respect of the proposed diversification for the three years ending 31 March 2024. The bank requires an independent examination of, and a report on, the profit and cash flow forecasts and Hijau's directors have requested that your firm perform this engagement. Hijau's finance director, Izaty Rahim, has proposed, in respect of this engagement, that: (1) The responsibilities of your firm include making recommendations to the directors as to how best to prepare and present the profit and cash flow forecasts to increase the likelihood of the bank agreeing to Hijau's application; and (2) Your firm's fee for the examination of and report on the profit and cash flow forecasts will only be paid once the bank agrees to provide the finance to Hijau with no fee payable should Hijau's bank decline the new loan application If the loan is approved by the bank, Hijau plans to use the funds to add more refrigeration units and shelving racks in each garden centre and also make an initial purchase of inventories of gourmet foods and gifts. In addition, an upgrade to the computerised tills (cash register) system at each garden centre will be performed by Pandai Sdn Bhd, Hijau's technology provider. As the upgrade represents an enhancement to the current tills system, the directors propose to include the cost of the upgrade as an addition to computer equipment within non- current assets. Explain the professional issues for your firm raised by Izaty Rahim's proposal in (1) and (2). (6 marks) The directors are planning to diversify the business by introducing, in September 2021, a gourmet food hall and gift shop into each garden centre to take advantage of the increasing gardening craze on social media. In order to fund the proposed diversification, a new loan application has been submitted to the company's bank. The bank wishes to examine the audited financial statements for the year ended 31 March 2021 together with the profit and cash flow forecasts in respect of the proposed diversification for the three years ending 31 March 2024. The bank requires an independent examination of, and a report on, the profit and cash flow forecasts and Hijau's directors have requested that your firm perform this engagement. Hijau's finance director, Izaty Rahim, has proposed, in respect of this engagement, that: (1) The responsibilities of your firm include making recommendations to the directors as to how best to prepare and present the profit and cash flow forecasts to increase the likelihood of the bank agreeing to Hijau's application; and (2) Your firm's fee for the examination of and report on the profit and cash flow forecasts will only be paid once the bank agrees to provide the finance to Hijau with no fee payable should Hijau's bank decline the new loan application If the loan is approved by the bank, Hijau plans to use the funds to add more refrigeration units and shelving racks in each garden centre and also make an initial purchase of inventories of gourmet foods and gifts. In addition, an upgrade to the computerised tills (cash register) system at each garden centre will be performed by Pandai Sdn Bhd, Hijau's technology provider. As the upgrade represents an enhancement to the current tills system, the directors propose to include the cost of the upgrade as an addition to computer equipment within non- current assets. Explain the professional issues for your firm raised by Izaty Rahim's proposal in (1) and (2). (6 marks)

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Professional issues faced by Partner of Audit firm deemed to Guilty of Professional Misconduct 2 cla... View the full answer