(a) Cash flow forecast
Matters
– Potential overestimation of cash receipts from customers
– Lower than forecast sales may lead to net overdraft
– Potential underestimation of salary and other operating payments
– Simplistic assumption of cost inflation
– Investments do not match management’s forecast disposal valuation
– Assumption of growth in value of investments is very optimistic
– Ability to repay loans dependent upon other assumptions
– Lack of specific consideration of non-operating cash flows 
Procedures
– Review latest interim financial statements
– Discuss forecast sales and customer receipts with management
– Inspect J Stewart loan agreement
– Inspect terms of bank loan
– Enquire of management whether they have begun renegotiations regarding bank loan facility
– Enquire with management about contingency plans
– Perform analytical review of payroll costs
– Perform analytical review of other operating costs
– Inspect non-current asset registers
– Inspect post year-end cash book
– Review outcomes of previous management forecasts
– Obtain written representations from management (maximum ½ mark)
Maximum marks 14