Sweete & Lowe are the auditors of BigBoy plc and have been asked as a special-purpose audit engagement to express an opinion on the present liquidity of the company and, in particular, the ability of the company to repay some proposed loan finance. The report is required by the Unlikely Bank plc in connection with a large loan for new premises and equipment.

Discussion
— What work should the accountants do in connection with the assignment?
Produce an accountant’s report on the basis that:
(a) All is well and there are no apparent difficulties in repaying the loan based on management’s forecasts of the benefits of the new assets to the business.
(b) Present liquidity is adequate but could be problematic if some debts are not recovered in full and the assumptions underlying the forecast of ability to repay the loan are very optimistic.