This question combined the topics of going concern and audit reports. The scenario gave some detailed information about an audit client, Burford Co, facing various financial and operating difficulties, due in part to the obsolescence of its main product. A new product was being developed as a replacement being due to launch in the next financial year. A cash flow forecast had been prepared by management, and the key assumptions used in the forecast were provided.

Requirment (ai) asked candidates to identify and explain the matters which cast doubt on the going concern status of Burford Co. This was for 6 marks. Some candidates provided sound explanations. However, as seen in other questions, many candidates did not provide explanations for the matters that they had identified. Candidates should be aware that by this stage in their professional studies simply repeating information from the given scenario is not enough to secure a pass mark for an individual requirement.

Requirement (aii) required candidates to explain the audit evidence they should expect to find when performing a file review in respect of the cash flow forecast. Again, answers were mixed in quality, with some answers providing well explained, specific evidence points, while other answers were too vague to score well. Typically weak evidence points would include “discuss cash flows with management” or “agree figures to supporting documentation” which are simply too vague. Some candidates also seemed to forget that they were commenting on a cash flow forecast, suggesting that all of the figures in the forecast should be agreed to the company’s bank statement even though some of the transactions included in the forecast were due to occur a few months in the future. Another problem in some scripts was that the evidence points provided did not focus on the cash flow forecast as requested, but instead were evidence points on going concern generally.