a. Determine the potential indicators that Khoo Designs Bhd. may not face any going concern issues. b. Describe the audit procedures that Awal & Associates should perform in assessing going concern issues. c. Explain Awal & Associate's responsibility for reporting on going conce.n to the directors of Khoo Designs Bhd.
a. Determine the potential indicators that Khoo Designs Bhd. may not face any going concern issues. b. Describe the audit procedures that Awal & Associates should perform in assessing going concern issues. c. Explain Awal & Associate's responsibility for reporting on going conce.n to the directors of Khoo Designs Bhd.
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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Question
![Khoo Designs Bhd. is a kitchen manufacturing company and the company's year-end is 30
September. Encik Danish is the audit manager of Awal & Associates and have been provided with
the information during the audit investigation. Recently, Khoo Designs Bhd. has been experiencing
trading difficulties, as its major customer who owes them RM800,000, ceased trading. However,
the balance is included in the financial statements. The sales director has left Khoo Designs Bhd.
and yet to be replaced. The monthly cash flow has shown a net cash outflow for the last two months
of the financial year and is forecasted as negative for the forthcoming financial year. As a result of
this, the company has been slow in paying its suppliers and some are threatening legal action to
recover the sums owing. Due to its financial difficulties, Khoo Designs Bhd. missed a few months
of installment for loan repayment. As a result of this breach in the loan covenants, the bank has
asked that the loan of RM5.5 million to be repaid in full within six months. The directors have
decided to maintain the liquidity level, so no final dividend will be paid in 2019. The finance
director has informed Awal & Associates that as the cash flow issues are short term he does not
propose to make any amendments to the financial statements.
Required:
a. Determine the potential indicators that Khoo Designs Bhd. may not face any going concern
issues.
b. Describe the audit procedures that Awal & Associates should perform in assessing going
concern issues.
c. Explain Awal & Associate's responsibility for reporting on going concein to the directors of
Khoo Designs Bhd.
d. Asses the consequences on the audit report if the directors not used the amendments in the
financial statements.
e. Draft the auditors' opinion paragraph of MZ Communications Sdn. Bhd. for financial year
ended 30 September 2019 .](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0e5a1772-6414-4083-b891-b28976a4fedc%2F8e682fb3-fdde-4f63-9d80-65d75ace5c73%2Fdd7gcon_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Khoo Designs Bhd. is a kitchen manufacturing company and the company's year-end is 30
September. Encik Danish is the audit manager of Awal & Associates and have been provided with
the information during the audit investigation. Recently, Khoo Designs Bhd. has been experiencing
trading difficulties, as its major customer who owes them RM800,000, ceased trading. However,
the balance is included in the financial statements. The sales director has left Khoo Designs Bhd.
and yet to be replaced. The monthly cash flow has shown a net cash outflow for the last two months
of the financial year and is forecasted as negative for the forthcoming financial year. As a result of
this, the company has been slow in paying its suppliers and some are threatening legal action to
recover the sums owing. Due to its financial difficulties, Khoo Designs Bhd. missed a few months
of installment for loan repayment. As a result of this breach in the loan covenants, the bank has
asked that the loan of RM5.5 million to be repaid in full within six months. The directors have
decided to maintain the liquidity level, so no final dividend will be paid in 2019. The finance
director has informed Awal & Associates that as the cash flow issues are short term he does not
propose to make any amendments to the financial statements.
Required:
a. Determine the potential indicators that Khoo Designs Bhd. may not face any going concern
issues.
b. Describe the audit procedures that Awal & Associates should perform in assessing going
concern issues.
c. Explain Awal & Associate's responsibility for reporting on going concein to the directors of
Khoo Designs Bhd.
d. Asses the consequences on the audit report if the directors not used the amendments in the
financial statements.
e. Draft the auditors' opinion paragraph of MZ Communications Sdn. Bhd. for financial year
ended 30 September 2019 .
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