Cool Look Limited (CLL) is a high-end clothing design and manufacturing company that has been in business in Canada since 1964. CLL started as an owner-managed enterprise created and run by Hector Gauthier. Its ownership has stayed within the family, and Martin Roy, Hector's grandson, is the newly appointed president, chief executive officer, and chairman of the board of CLL. You are a chartered accountant and the audit senior on the CLL audit for its fiscal year, which ended November 30, 2012. Today is December 9, 2012, and you are reviewing correspondence from CLL's bank. You come upon a letter dated November 1, 2012, from the bank's credit manager that causes you some concern (Exhibit I). You pull out your notes from your review of the board's minutes (Exhibit II) to clarify your thoughts.
Required
(a) What facts indicate that CL may not be a going concern? What facts indicate that CL may be a going concern? Make a conclusion on whether you believe it is appropriate to assume the company will remain a going concern.
(b) What are the risks related to the shareholder loan? What are three recommended procedures the auditor should perform related to the shareholder loan?
(c) What type of report should be issued if management refuses to disclose the shareholder loan as required by IFRS and ASPE? Why?
(d) Discuss the decisions made by the board. Are they ethical? Do they comply with the requirements of CSA's Corporate Governance Guidelines?