You are the auditor of Aussie Chemists Pty Ltd, a wholly owned subsidiary of United Pharmaceuticals Inc. (UPI), a company listed on the New York Stock Exchange.  Aussie Chemists was established in 2012 to provide UPI with access to the Australian market.  Since its establishment, Aussie Chemists as found trading condition difficult.

Based on your audit work, you believe that unless Aussie Chemists receives a significant cash flow injection or trading conditions improve, it will be insolvent within four months.

You have approached the CEO of Aussie Chemists with your concerns and she has indicated that there is nothing for you to worry about, as UPI has guaranteed financial support of Aussie Chemists for as long as it takes to establish a market presence.

Required: 

a.  How would the parent company’s support affect your assessment of the going concern status of Aussie Chemists?

b.  Describe any further evidence you will require to assess the appropriateness of the going concern assumption at Aussie Chemists.

c.  Assuming that Aussie Chemists is considered a going concern, explain the effect that Aussie Chemist’ financial situation will have on the financial report.

Answer rating: 100% (QA)

a As per the standards of auditing while auditing the financial statement of the entity it is the re... View the full answer