You are responsible for the audit of Abrewa, a limited liability company, for the year ended...

  

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You are responsible for the audit of Abrewa, a limited liability company, for the year ended 31 December 2020. The principal activity of Abrewa is the provision of high quality packaging services for pharmaceutical manufacturing companies. The company was established 3 years ago and has significantly exceeded its growth targets in each subsequent year. Historically, the packaging process was labour intensive but in September 2020, as a result of Covid and in an effort to reduce labour costs and increase efficiency, the company invested in an enhanced automated packing system. The investment was funded by a loan from Fofofo Bank repayable in monthly instalments over four years. The loan agreement specifies that the company's debt to equity ratio should not exceed 1:1. A comparison of the draft financial statements for the year ended 31 December 2020 with the previous year indicates a significant increase in revenue with a small increase in profitability. The company is currently trading in excess of its overdraft limit and is negotiating an increase in its facility with the bank. Management has prepared, in support of its negotiations, profit and cash flow forecasts based on the assumptions that the anticipated increase in efficiency and reduction in labour costs will be achieved. The company however, struggles to meet the weekly wage bill and has fallen behind with its payments to the taxation authorities. It has also failed to comply with the terms of the lease in respect of the factory premises and has not paid the last 3 months' instalments. Required a) Identify, and explain, from the information provided above, five (5) factors which 15 marks indicate that Abrewa may not be a going concerm. b) Explain two (2) matters to which you would direct your attention in the period after the end of the reporting period in order to determine whether Abrewa can continue as going concern for the foreseeable future. 5 marks e) Briefly explain compliance and performance audit in governmental sector, describing the purpose and relevance of such audits to the public. 5 marks You are responsible for the audit of Abrewa, a limited liability company, for the year ended 31 December 2020. The principal activity of Abrewa is the provision of high quality packaging services for pharmaceutical manufacturing companies. The company was established 3 years ago and has significantly exceeded its growth targets in each subsequent year. Historically, the packaging process was labour intensive but in September 2020, as a result of Covid and in an effort to reduce labour costs and increase efficiency, the company invested in an enhanced automated packing system. The investment was funded by a loan from Fofofo Bank repayable in monthly instalments over four years. The loan agreement specifies that the company's debt to equity ratio should not exceed 1:1. A comparison of the draft financial statements for the year ended 31 December 2020 with the previous year indicates a significant increase in revenue with a small increase in profitability. The company is currently trading in excess of its overdraft limit and is negotiating an increase in its facility with the bank. Management has prepared, in support of its negotiations, profit and cash flow forecasts based on the assumptions that the anticipated increase in efficiency and reduction in labour costs will be achieved. The company however, struggles to meet the weekly wage bill and has fallen behind with its payments to the taxation authorities. It has also failed to comply with the terms of the lease in respect of the factory premises and has not paid the last 3 months' instalments. Required a) Identify, and explain, from the information provided above, five (5) factors which 15 marks indicate that Abrewa may not be a going concerm. b) Explain two (2) matters to which you would direct your attention in the period after the end of the reporting period in order to determine whether Abrewa can continue as going concern for the foreseeable future. 5 marks e) Briefly explain compliance and performance audit in governmental sector, describing the purpose and relevance of such audits to the public. 5 marks

Answer rating: 100% (QA)

a Factors Indicating Abrewa May Not Be a Going Concern 1 Excessive Debt to Equity Ratio The companys investment in the automated packing system was funded by a loan from Fofofo Bank The loan agreement ... View the full answer