You are appointed audit senior of Ponga & Co for the audit of Going Away Ltd, an

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Question:

You are appointed audit senior of Ponga & Co for the audit of Going Away Ltd, an appliance manufacturer with its year end of 31 July 2019. The following are some of the notes in respect of a meeting between Ponga and Going Away:

1) One of Going Away’s the significant customer has stopped trading. This customer owes $0.7 m to Going Away with an unlikely chance of payment; however, the balance is included within the financial statements extracts below.

2) The sales director has recently left Going Away and has yet to be replaced.

3) The monthly cash flow has shown a net cash outflow for the last two months of the financial year and is forecast as negative for the forthcoming financial year. As a result of this, the company has been slow in paying its suppliers and some are threatening legal action to recover the sums owed.

4) Due to its financial difficulties, Going Away missed a loan repayment and, as a result of this breach in the loan covenants, the bank has asked that the loan of $4.8 be repaid in full within six months. The directors have decided that in order to conserve cash, no final dividend will be paid in 2019.

5) Financial statements extracts for year ended 31 July 2019:

Draft Actual

2019 2018

$m $m

Current assets

Inventory 3.5 1.7

Receivables 1.3 2.1

Cash ---- 1.2

Current liabilities

Trade payables 1.8 0.8

Overdraft 0.8 ----

Loans 4.8 0.2

Required:

a) Referring to the data above, describe the audit procedures that you should perform in assessing whether or not Going Away is a going concern. (20 marks)

b) Having performed the going concern audit procedures, you have serious concerns in relation to the going concern status of Going Away. The finance director has informed you that as the cash flow issues are short term he does not propose to make any amendments to the financial statements. State Ponga & Co’s responsibility for reporting an ongoing concerns to the directors of Going Away Ltd.