Along with this exam, an article from the Journal of Accountancy from April 3, 2020 regarding going concern, both from the FASB requirements (FASB ASU 2014-15) and the AICPA (SAS No 132), is attached to the e-mail.

(Continued next page)

Problem 5 (continued):

The following going concern disclosure is from the CINEWORLD Financial Statements for the year ended March 31, 2020:

The Group continues to adopt the going concern basis in preparing its Consolidated Financial Statements.

The uncertainty as to the future impact on the Group of the recent COVID-19 outbreak has been considered as part of the Group's adoption of the going concern basis. Thus far, we have not observed any material impact on our movie theatre admissions due to COVID-19. Following an increase in admissions in the first two months of the year against the same period in the previous year, we continue to see good levels of admissions in all our territories, despite the reported spread of COVID-19. Although the release of the new Bond movie has been postponed to November 2020 largely due to closure of cinemas in the Asian markets, the studios have advised us that in the countries in which we operate, they currently remain committed to their release schedule for the coming months and remainder of the year.

In the downside scenario analysis performed, the Board has considered the potential impact of the COVID-19 outbreak on the Group's results. In preparing this analysis the following key assumptions were used: the impact of a total loss of revenue across the enlarged estate for between one and three months, no fixed costs reductions should sites be closed, run-rate combination benefits of c.$133m expected to be achieved as part of the Cineplex acquisition, forecast capital expenditure reduced in 2020 by 90%, and cessation of dividend payments from 1 July 2020.

This analysis does not take account of the fact that in the case of widespread site closures the films scheduled to be released during this period of closure could be moved to later in 2020. These downside scenarios are currently considered unlikely, however it is difficult to predict the overall outcome and impact of COVID-19 at this stage. Under the specific downside scenario, however, of the Group losing the equivalent of between two and three months' total revenue across the entire estate there is a risk of breaching the Group's financial covenants, unless a waiver agreement is reached with the required majority of lenders within the going concern period.

Only the specific downside scenario detailed above would indicate the existence of a material uncertainty, which may cast significant doubt about the Group's ability to continue as a going concern. The Consolidated Financial Statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

Required:

Using the material in the Journal of Accountancy, briefly describe what audit steps you may take under SAS No. 132 to satisfy yourself that CINEWORLD adequately complied with the requirements of FASB ASU 2014-15 (Going Concern). The section under the article "Special considerations related to the COVID-19 pandemic" may be especially helpful.