assigned to the dit of Pearson (Pty) (Pearson'). You are one five individuals on the audit team at Pearson. The Audit Senior presented you with the following information about Pearson. Background Information of Pearson Pearson was established in 1983 in South Africa. Pearson's core business is to develop and build construction sites. The Head Office is situated in Johannesburg. Pearson employs 16 850 employees and has an August financial year-end. The following is an extract of certain financial information of Pearson (Pty) Ltd: 2023 R'000 2021 R'000 2022 R'000 Sales 42 560 38 912 32 108 Cost of sales (36 780) (28 456) (24 258) Gross Profit 5780 7 850 Other expenses (7521) Dividend paid Net profit/(loss) (1 741) (736) 10 456 (11012) (180) (9 231) (120) (1501) Non-current Assets 13 500 11 500 8 000 Current Assets 17 448 16 857 13 763 Current Liability 21 520 18 587 14 456 Non-current Liability 39 520 32 520 28 780 Assets and liabilities are valued using the cost-price model. While conducting risk assessment procedures, the following were noted: Included in the non-current liabilities are fixed-term borrowings, which are approaching maturity without prospects of repayment. Pearson places excessive reliance on borrowings and facilities to finance long- term assets. 68 HAUD332-1-Jul-Dec2023-FA1-MS-V3-16032023 ANNEXURE F: FORMATIVE ASSESSMENT 1 Certain senior management were removed in the current year, but Pearson managed to fill the senior management positions. In the current year, Pearson built a site in the West Coast region where one of the workers had an accident and, on the way to the hospital passed on. This news quickly went to the media which resulted in a bad perception by the public of Pearson. The above incident also caused negative publicity due to the photos and posts on social media. The family of the worker who had an accident took legal action and at year-end, there was still a pending lawsuit against Pearson. Pearson is in arrears on a few years of dividend payments but is committed to paying dividends for the foreseeable future. Pearson is in the process of extending the entity's overdraft facility. The accounts receivable regressed and are currently at five months even though Pearson's policy is 60 days. Pearson's accounts payable have increased in the current financial year. The Chief Financial Officer (CFO) negotiated with Pearson's top two largest suppliers, which represent 45% of the total of the accounts payable, to extend the payment term from 30 to 60 days. While you were finalising the audit, the Financial Manager of Pearson informed you that the entity had been awarded a contract to construct a building in Saldanha for which they have submitted a tender. The Financial Manager felt that this would assure the future of Pearson. They applied to the bank to assist with financing the project. For this project, Pearson will need additional engineers and installers for project-specific requirements. REQUIRED: 1.1 69 Discuss the appropriateness of the going concern assumption for the financial statements of Pearson (Pty) Ltd for the financial year ending 31 August 2023. Structure your answer as follow: A) Negative aspects that increase the going concern risk B) Positive aspects that decrease the going concem risk (14 marks) (4 marks) HAUD332-1-Jul-Dec2023-FA1-MS-V3-16032023