You are currently employed at ACS Auditors and are the Audit Senior on the audit of...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You are currently employed at ACS Auditors and are the Audit Senior on the audit of Cougar Limited. Cougar Limited's activities are all related to educational games for children ages 3-9. All the games are developed by the entity in-house. The games are advertised online, therefore included in the business activities, are also the operation and maintenance of their website. Cougar Limited has a 31 December financial year-end and you are presently conducting the 2022 audit. The Financial Director of Cougar Limited provided you with an extract of the financial statements and he also expressed his concern about the decline in cash flows. The Financial Manager also mentioned to you that he raised his concern regarding the entity's ability to remain a going concern during a board meeting held on the 23rd of October 2021. The board then decided to take the following actions to ensure the entity remains a going concern: ● ● ● A portion of the debtor's book will be sold to a private Finance House in a debtor's factorisation transaction (75% of the book value of the specific debtors sold). The transaction will secure a cash inflow of R2.9 million by March 2022. Cougar Limited is considering new services, resulting in new revenue streams, which could lead to an increase in entity profits. Sales Cost of sales Gross Profit Net profit/(loss) Non-current Assets Current Assets Inventory Actual figures 2022 R'000 12 560 6 780 5 780 (1 230) 13 500 17 448 4 258 Budgeted figures 2022 R'000 18 912 10 456 8 456 6 123 11 500 16 857 2 980 Actual figures 2021 R'000 23 108 12 258 10 850 3 450 8 000 13 763 2 075 ● Accounts ● Current liability Non-current liability ● Receivables Bank and cash 2.2 13 145 2.3 45 21 520 19 520 11 890 1 987 18 587 17 520 The following additional financial information of Cougar Limited is available: Included in the actual current liabilities figure is a bank balance overdraft of R8 500 000. Increased overdraft facilities had been obtained during the financial year. During the financial year a newspaper article was published indicating a possible copyright infringement claim. According to the newspaper articles and lawyers, a positive outcome of the court case is very important for the survival of the entity. 9 102 2 586 14 456 18 780 Required 2.1 Discuss the appropriateness of the going concern assumption by providing, separately, the aspects that increase the risk of the going concern and the aspects that decrease the risk of the going concern for Cougar Limited's (15 Marks) financial year ended 28 February 2022. Cougar Limited is also struggling to pay its creditors on time and currently has more than half of its creditors outstanding for more than 120 days. This exceeds the agreed-upon terms of 30 days. Based on your discussion in 2.1, discuss the effect of the going concern assumption on the audit report in terms of ISA 570 Paragraph 18a, 18b and 19. (10 Marks) Describe the substantive procedures you would perform regarding the appropriateness of the going concern assumption based on your answers in 2.1 and 2.2. In your answer, include general procedures as well as procedures (15 Marks) in relation to the factorisation of debtor's book HAUD332-1-Jul-Dec2022-FA1-MS-V4-22022022 You are currently employed at ACS Auditors and are the Audit Senior on the audit of Cougar Limited. Cougar Limited's activities are all related to educational games for children ages 3-9. All the games are developed by the entity in-house. The games are advertised online, therefore included in the business activities, are also the operation and maintenance of their website. Cougar Limited has a 31 December financial year-end and you are presently conducting the 2022 audit. The Financial Director of Cougar Limited provided you with an extract of the financial statements and he also expressed his concern about the decline in cash flows. The Financial Manager also mentioned to you that he raised his concern regarding the entity's ability to remain a going concern during a board meeting held on the 23rd of October 2021. The board then decided to take the following actions to ensure the entity remains a going concern: ● ● ● A portion of the debtor's book will be sold to a private Finance House in a debtor's factorisation transaction (75% of the book value of the specific debtors sold). The transaction will secure a cash inflow of R2.9 million by March 2022. Cougar Limited is considering new services, resulting in new revenue streams, which could lead to an increase in entity profits. Sales Cost of sales Gross Profit Net profit/(loss) Non-current Assets Current Assets Inventory Actual figures 2022 R'000 12 560 6 780 5 780 (1 230) 13 500 17 448 4 258 Budgeted figures 2022 R'000 18 912 10 456 8 456 6 123 11 500 16 857 2 980 Actual figures 2021 R'000 23 108 12 258 10 850 3 450 8 000 13 763 2 075 ● Accounts ● Current liability Non-current liability ● Receivables Bank and cash 2.2 13 145 2.3 45 21 520 19 520 11 890 1 987 18 587 17 520 The following additional financial information of Cougar Limited is available: Included in the actual current liabilities figure is a bank balance overdraft of R8 500 000. Increased overdraft facilities had been obtained during the financial year. During the financial year a newspaper article was published indicating a possible copyright infringement claim. According to the newspaper articles and lawyers, a positive outcome of the court case is very important for the survival of the entity. 9 102 2 586 14 456 18 780 Required 2.1 Discuss the appropriateness of the going concern assumption by providing, separately, the aspects that increase the risk of the going concern and the aspects that decrease the risk of the going concern for Cougar Limited's (15 Marks) financial year ended 28 February 2022. Cougar Limited is also struggling to pay its creditors on time and currently has more than half of its creditors outstanding for more than 120 days. This exceeds the agreed-upon terms of 30 days. Based on your discussion in 2.1, discuss the effect of the going concern assumption on the audit report in terms of ISA 570 Paragraph 18a, 18b and 19. (10 Marks) Describe the substantive procedures you would perform regarding the appropriateness of the going concern assumption based on your answers in 2.1 and 2.2. In your answer, include general procedures as well as procedures (15 Marks) in relation to the factorisation of debtor's book HAUD332-1-Jul-Dec2022-FA1-MS-V4-22022022
Expert Answer:
Answer rating: 100% (QA)
21 Discussion of the Appropriateness of the Going Concern Assumption Aspects that increase the risk of the going concern Decline in cash flows The fact that Cougar Limiteds cash flows have been declin... View the full answer
Related Book For
Posted Date:
Students also viewed these accounting questions
-
The Crazy Eddie fraud may appear smaller and gentler than the massive billion-dollar frauds exposed in recent times, such as Bernie Madoffs Ponzi scheme, frauds in the subprime mortgage market, the...
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
You, CA, have been working for Plener and Partners, Chartered Accountants (P&P), a mid-size CA firm, for three years. You have been assigned a new project for a long-term client of your firm, Oxford...
-
In terms of Federal tax consequences, why are lifetime transfers to charity preferable to testamentary transfers?
-
Stout Company has gross sales of 250% of cost of goods sold. It has also provided the following information for the calendar year 2012: Inventory balance, January 1, 2012 . . . . . . . . . . . . . ....
-
Electroboy Enterprises, Inc. operates several stores throughout the western United States. As part of an operational and financial reporting review in a response to a downturn in its markets, the...
-
a. What is the auditor's responsibility for subsequent events? b. How does he discharge this responsibility?
-
A task force of capital budgeting analysts at Seger Ltd. collected the following data concerning the drilling and production of known petroleum reserves at an offshore location: Investment in rigging...
-
Access and listen to the podcast below from NPR's Planet Money regarding credit reports. Episode 798: Bad Credit BureauLinks to an external site Reference:...
-
The ping-pong ball has a mass of 2 g. If it is struck with the velocity shown, determine how high h it rises above the end of the smooth table after the rebound. Take e = 0.8 30 18 m/s 0.75 m 2.25 m
-
a. Find the Fourier cosine series of f(x) = 3 x for 0 x 3. b. Evaluate your Fourier cosine series at x = -1. Hint: sketch the graph.
-
How the local optimization can be avoided?
-
Give some examples of combinatorial optimization in the field of chemical engineering.
-
What are advantages of computer applications for optimization?
-
Do you expect to be able to observe the diffraction of light through \((a)\) the front door to your house; \((b)\) the holes in a button; (c) the gaps between threads of the fabric of an umbrella?
-
Does online success as an e-commerce company automatically translate into successful bricks-and-mortar commerce? Discuss and research the strategy behind Amazon's recent decision to open retail...
-
Create a program to process and order amount. Your program will have a Class called caleTax, which contains a returning method called Taxrate. As part of the main program, there will also be a...
-
On 1 July 2021, Croydon Ltd leased ten excavators for five years from Machines4U Ltd. The excavators are expected to have an economic life of 6 years, after which time they will have an expected...
-
You, a CA, are a senior accountant employed by Terrazas & Boyer, Chartered Accountants. On a Monday morning in March 2013, Joseph Terrazas, a partner in the rm, walked into your ofce and announced:...
-
What is meant by realization of prots?
-
Explain how the adjustment for intragroup transactions affects the calculation of the NCI share of equity.
-
Determine the displacement of point \(C\). The beam is made from A992 steel and has a moment of inertia of \(I=53.8 \mathrm{in}^{4}\). 8 kip A B -5 ft- -10 ft 5 ft-
-
Determine the slope at \(B\). The beam is made from A992 steel and has a moment of inertia of \(I=53.8 \mathrm{in}^{4}\). 8 kip A B -5 ft- 10 ft- -5 ft-
-
Determine the displacement at point \(D\). The A992 steel beam has a moment of inertia of \(I=125\left(10^{6} ight) \mathrm{mm}^{4}\). 18 kNm A 4m- D B3m 3m 41 4 m- 18 kNm
Study smarter with the SolutionInn App