AP - GC

What are the audit risk for operation in respect of going concern

• Company is experiencing loss making and is therefore unable to generate sufficient cash from its operations
• Losses future sales
• Increased in TP days in from X to Y in excess of the 30 days credit terms agreed with suppliers indicates delaying payment because of cashflow issues
• Loss of key management without replacement
• Contracts are likely to be unprofitable and any continued fall in sterling will exacerbate this issue

What are the audit risk for operation in respect of going concern

• Heavily reliant on 1 supplier to …. and it will disrupt its operations due to ….
• Contracts are likely to be unprofitable and any continued fall in sterling will exacerbate this issue
• Business has experienced rapid expansion indicating of overtrading resulting in cash flow problems
• unskilled Intention to liquidate
• Fixed price contracts with customers and adverse movements in sterling has made components more expensive (if purchase)/ has made components less profitable (if sales)

What are the audit risk for operation in respect of going concern

• Heavily reliant on customer as the contract is due for renewal, if it is not renewed this will reduce the revenue further by X% and increase the losses currently experiences
• Fixed price contracts with customers and adverse movements in sterling has made components more expensive (if purchase)/ has made components less profitable (if sales)
• Client operates in high tech industry where products may be superseded(obsolete) quickly
• cease Labour difficulties
• Company is experiencing loss making and is therefore unable to generate sufficient cash from its operations

What are the audit procedure for the risk of operation in respect of going concern

• Request for cashflow forecast and evaluate: • Reasonableness of the assumptions • Perform sensitivity analysis on key variables
• Review any advance sales order
• Enquire management on the strategies to be adopted in steering the company forward
• Enquire with management on alternative customer or suppliers should their respective contracts being not renewed
• Obtain written representation from the management confirming that company is GC entity

What are the audit procedure for the risk of operation in respect of going concern

• Request for cashflow forecast and evaluate: • If the company is able to meet its liabilities when it falls due • Compare expired period to actual
• Request for current management accounts and recalculate key working capital ratios to ascertain their performance
• Read minutes of meetings of shareholders, those charged with governance and relevant committees for reference of financial difficulties
• Read correspondence with customers/ suppliers if the contract is likely to be renewed/ to establish the level of agreement
• Board minutes regarding legal case/financing plan

What are the audit procedure for the risk of operation in respect of going concern

• Analyse and discuss on the entity's latest available interim financial statements and management accounts with management (period less than a year)
• Ascertain from management on the steps taken to monitor and control operating expenses
• Evaluate the entity's plan to deal with unfilled customers' orders
• Compare the costs incurred with the fixed price contracts to ascertain if some of the projects are loss making
• Read minutes of meetings of shareholders, those charged with governance and relevant committees for reference of financial difficulties

What are the audit risk for financial in respect of going concern

• Heavily reliant on overdraft to meet its operating expenses
• Loan is usually attached with covenants
• Premise is used as collateral for the facility and this may be forced to sold if they fail to meet the covenants attached to the loan facility
• Company is currently renegotiating its overdraft
• Arrears or discontinuance of dividends

What are the audit risk for financial in respect of going concern

• Overdraft is expensive an repayable on demand
• Bank will have the right to foreclose the operation if fail to meet the repayment
• Fixed-term borrowing is approaching the maturity without realistic prospects of renewal or repayment
• Deterioration of cash flows increases going concern risk, which will be made worse if the overdraft withdrawn
• Change from credit to COD transactions with suppliers

What are the audit procedure for the risk of fiancial in respect of going concern

• Discuss with management on alternatives providers of finance
• Read correspondence with bank to ascertain relationship
• Read the loan agreements to ascertain the covenants attached and evaluate if client has breached any covenants
• Calculated effect on liquidity ratios and debtor days and action to remedy the cashflow problem
• Read minutes of meetings of shareholders, those charged with governance and relevant committees for reference of financial difficulties

What are other audit risk in respect of going concern

• Difficulties trading conditions over the years as decline in revenue and GPM of ….
• Operates in a regulated industry and noncompliance would results in fines and penalties by regulators which in turn will have a detrimental effect on their reputation
• Fail to move along the competitors in investing to the latest technology and hence forgo the potential profit
• Adverse media comments and loss of customer goodwill
• Decrease in share price