Audit and Assurance – ICAEW questions with correct answers

Going concern - company performance - justification of risk - Answer Company may not be able to continue as a going concern because of: - Company performance to date has been poor. - Forecasted revenue is X... and predicting to make a loss Going concern - expansion - justification of risk - Answer - Rapid expansion could be indicative of overtrading, resulting in cash flow problems - A new venture would cause further cash flow problems Going concern - overdraft/loan - justification of risk - Answer - If overdraft is due. - If there is risk that the facility will be withdrawn. e.g. if risk covenants will be breached Going concern - market conditions/supplier reliance - justification of risk - Answer - If market is highly competitive, pressure on margins - If company is highly reliant on supplier Y, Y could go into liquidation/failure to reach agreement with Y. Going concern - publicity/compliance/provision - justification of risk - Answer - Company has experienced adverse publicity - Potential breaches on compliance or regulation - financial losses or regulator action - Large provision (legal claim/bad debt) could threaten going concern