You have completed the audit of Magnolia Ltd for the year ended 31 December 2018. The financial statements show turnover of £10 000 000 – down 10 per cent on the prior year – and losses of £75 000.

The company has net assets of £1 000 000 (2017: £1 100 000). The losses are mainly due to loss of market share following the entry of a new powerful competitor into the industry. The directors approved the financial statements and your firm signed the audit report on 30 May 2019. The copy for filing with the Registrar of Companies is still on your client file. You have just received a phone call today (26 June 2019)

from your client informing you that negotiations in respect of certain sale contracts have unexpectedly collapsed and the outlook for the company is now uncertain.

Required:

(a) State the audit work you would have completed in relation to going concern for this client prior to signing your audit report on 30 May 2019.

(b) Set out the effects which the phone call you have received today will have on:
(i) the audit opinion you signed on 30 May 2019; and (ii) the set of financial statements yet to be filed with the Registrar of Companies.