Question $4(20$ Marks$)$

Smithson Co provides scientific services to a wide range of clients. Typical assignments range from testing food for illegal

additives to providing forensic analysis on items used to commit crimes to assist law enforcement officers. The annual

audit is nearly complete. As audit senior you have reported to the engagement partner that Smithson is having some

financial difficulties. Income has fallen due to the adverse effect of two high$-$profile court cases, where Smithson$$s

services to assist the prosecution were found to be in error. Not only did this provide adverse publicity for Smithson, but a

number of clients withdrew their contracts. A senior employee then left Smithson, stating lack of investment in new

analysis machines was increasing the risk of incorrect information being provided by the company. A cash flow forecast

prepared internally shows Smithson requiring significant additional cash within the next $12$ months to maintain even the

current level of services. Smithson$$s auditors have been asked to provide a negative assurance report on this forecast.

Required:

$4\mathrm{.}1.$ Define $$going concern$$ and discuss the auditor$$s responsibilities in respect of going concern. $(10$ marks$)$

$4\mathrm{.}2.$ State the audit procedures that may be carried out to try to determine whether or not Smithson Co is a

going concern.

$(10$ marks$)$