Melbourne Metal Fabricators (MMF) is a company that makes steel components for the construction industry. It specialises

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Melbourne Metal Fabricators (MMF) is a company that makes steel components for the construction industry. It specialises in extreme precision manufacturing where tolerances are measured in distances of less than one millimetre. Its products are used in revolving restaurants, automatic doors and similar construction components. In the past, the majority of its sales have been to international construction companies, particularly in the Middle East. The drop in the price of oil has slowed construction in the Middle East, and the extremely expensive buildings requiring high-precision steel components are becoming less popular. In addition, some of the technology used by MMF has been copied by companies in South-East Asia, resulting in extreme price competition in this section of the construction industry for the first time.

MMF is highly geared. Two years ago the company borrowed a large sum of money to fund the purchase of new premises and the latest laser cutting equipment. The loan is due for renewal three months after year-end. One week before signing the audit report, the bank has still not agreed to renew the loan and MMF’s management has commenced negotiations with another bank.


Required

(a) Identify the factors that would raise questions about the going concern assumption for MMF. Are there any mitigating factors?

(b) What reporting options are available to the auditor of MMF? Discuss. Refer to ASA 570 in your answer.

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Auditing A Practical Approach

ISBN: 9780730382645

4th Edition

Authors: Robyn Moroney, Fiona Campbell, Jane Hamilton

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