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Assessing going concern Columbia Metal Fabricators (CMF) makes steel components for the construction industry. It specializes in extreme precision manufacturing where tolerances are measured in

Assessing going concern

Columbia Metal Fabricators (CMF) makes steel components for the construction industry. It specializes in extreme precision manufacturing where tolerances are measured in distances of less than one millimeter. 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. A 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 CMF has been copied by companies in Southeast Asia, resulting in extreme price competition in this section of the construction industry for the first time.

CMF is highly leveraged. Two years ago, the company borrowed a large sum of money to fund the purchase of new office headquarters 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 CMF's management has begun negotiations with another bank.

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1. Evaluate factors that would raise substantial doubt about the going concern assumption for CMF. Discuss any mitigating factors. 2. If there is a substantial going concern issue, what details should be disclosed in CMF's notes to the financial statements? (Note: You may want to access AU-C 570 for more details about auditing the adequacy of the disclosure.)

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