(i) Going concern indicators

Up to 1½ marks for each going concern indicator discussed, for example:

– Declining profitability and implication
– Poor liquidity – inability to pay suppliers/employees/overheads
– Poor liquidity – breach of loan covenant and implication
– Development of new product is a further drain on cash
– Success of new product is not guaranteed

Maximum marks 6

(ii) Procedures on cash flow forecast

Generally 1 mark for each well described procedure:

– Agreement of the opening cash position to the audited financial statements and general ledger or bank reconciliation
– Confirmation that casting of the cash flow forecast has been reperformed 
– Review of the results of any market research which has been conducted on the GreenFire product
– Discussion of the progress made on GreenFire’s development with a technical expert or engineer
– Review of correspondence with existing customers to gauge the level of interest in GreenFire and confirm if any orders have yet been placed
– A review of any sales documentation relating to the planned sale of plant and equipment 
– Physical inspection of the plant and equipment to be sold, to gauge its condition and the likelihood of sale
– Review of any announcement made regarding the redundancies
– Sample testing of a selection of those being made redundant, agreeing the amount they are to be paid to HR records
– Correspondence from the government department of the $30,000 grant to be received
– If the grant of $30,000 has been received, agree to cash book and bank statement
– Agreement that the cash flow forecast is consistent with profit and other financial forecasts which have been prepared by management
– Confirmation that any other assumptions used in the cash flow forecast are consistent with auditor’s knowledge of the business and with management’s intentions regarding the future of the company
– Comparison of the cash flow forecast for the period August–November 2013 with management accounts for the same period
– Analytical review of the items included in the cash flow forecast, for example, categories of expenses, to look for items which may have been omitted

Maximum marks 8