AUDITING AND ASSUARANCE

INSTRUCTIONS: Answer all questions

Techno Ltd provides scientific services to a wide range of clients. Typical assignments range from testing food for illegal additives to providing forensic analysis on items used to commit crimes to assist law enforcement officers.

The annual audit is nearly complete. As audit senior you have reported to the engagement partner that Techno Ltd. is having some financial difficulties. Income has fallen due to the adverse effect of two high-profile court cases, where Techno Ltd services to assist the prosecution were found to be in error. Not only did this provide adverse publicity for Techno, but a number of clients withdrew their contracts. A senior employee then left Techno Ltd, stating lack of investment in new analysis machines was increasing the risk of incorrect information being provided by the company.

A cash flow forecast prepared internally shows Techno Ltd requiring significant additional cash within the next 12 months to maintain even the current level of services. Techno Ltd auditors have been asked to provide a negative assurance report on this forecast.

1. State the audit procedures that may be carried out to try to determine whether or not Techno Ltd is a going concern.

(6 marks)

1. Explain the audit procedures the auditor may take where the auditor has decided that Techno ltd is unlikely to be a going concern.

(4 marks)

1. In the context of the cash flow forecast, define the term negative assurance and explain how this differs from the assurance provided by an audit report on statutory financial statements. (4 marks)
2. Assuming that you are the Auditor of Techno ltd for the year ended 2021 and given above is the current status of the company. Draft an independent auditors report addressing the shareholders of the company. ( 6 marks)