Safe & Dry Ltd (SDL) manufactures and sells roof tiles. You are conducting the audit of SDL
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Question:
Safe & Dry Ltd (SDL) manufactures and sells roof tiles. You are conducting the audit of SDL for the year ending 30 June 2020 and you note that SDL has a bank loan of $10 million from Regional Bank that is due to be repaid on 31 October 2021. SDL will need to be able to renew the loan, as SDL is unlikely to be able to meet its obligations without renewing it. The loan contains several restrictive covenants, which, if breached, entitle Regional Bank to recall the loan immediately.
SDL’s chief financial officer (CFO), Albert Kenny, has informed you that as the loan has not been recalled, obviously there have been no breaches during the year.
How would your audit team exercise their professional scepticism in relation to Albert’s claim?
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