(a) (i) Going concern matters

Up to 1½ marks per matter identified and explained (maximum 3 marks for identification):

– Negative cash position
– Net liabilities position
– Recurring losses
– Possible adjustment to deferred tax and development intangible asset exacerbate net liabilities position (allow 3 marks max)
– Fixed charge over assets
– Significant short term liabilities
– Potential misclassified provisions
– Forecast to remain in negative cash position 
– Assumptions re sales optimistic
– Receipt of loan and subsidy not guaranteed
– Assumption of sale value of financial assets could be optimistic

Maximum marks 10

(ii) Procedures on cash flow forecast

Generally 1 mark per specific procedure:

– Enquire regarding and consider validity of assumption re cash sales
– Inspect any supporting documentation re additional resources for credit control
– Seek written confirmation from Rubery Co re loan
– Review financial statements of Rubery Co re adequacy of resources
– Inspect subsidy application
– Seek third party confirmation that subsidy will be awarded
– Confirm cash outflows for operating expenses and interest appear reasonable
– Enquire about potentially missing cash outflows
– Agree date and amount of short term loan repayment to loan documentation
– Agree opening cash to cash book and bank statements

Maximum marks 8

Professional marks for presentation and clarity of explanations 2

(b) Matters to be considered and potential impacts on auditor’s report

1 mark each point explained:

– Disclosure of material uncertainty required by IAS 1
– Auditor considers adequacy of disclosure
– If disclosure adequate – no qualification
– If disclosure adequate – include EOM paragraph
– If disclosure inadequate – material misstatement leading to qualification or adverse opinion
– If disclosure inadequate – basis of opinion paragraph explains material uncertainty
– If multiple uncertainties – opinion may be disclaimed in rare circumstances

Maximum marks 7