You are the manager responsible for performing hot reviews on audit files where there is a potential disagreement between your firm and the client regarding a material issue. You are reviewing the going concern section of the audit file of Rockland Company Ltd., a client with considerable cash flow difficulties and other less significant operational indicators of going concern problems. The working papers indicate that Rockland DC: ACD01-F004 Company is currently trying to raise finance to fund operating cash flows, and state that if the finance is not received, there is significant doubt over the going concern status of the company. The working papers concluded that the going concern assumption is appropriate, but it is recommended that the financial statements should contain a note to explain the cash flow problems faced by the company, along with a description of the finance being sought, and an evaluation of the going concern status of the company. The directors do not wish to include the note in the financial statements.

Required:

(i) Consider and comment on the possible reasons why the directors of Rockland Company Ltd. are reluctant to provide the note to the financial statements.

(ii) Discuss the implications for the auditors if the directors refuse to include the disclosure note.

Answer rating: 100% (QA)

AThe administration might be hesitant on the grounds that giving a note on the financial statement over its ongoing income difficulties may be misjudg... View the full answer