AYN458: Ethics and Professional RelationshipsPage 6"Staying alive in the downturn!"You are the Financial Director of a large private construction company, Larkin Joe Ltd. The company undertakes major construction projects such as building new roads, motorways etc. Until last year the company had been very profitable but the economic downturn resulting from the Covid-19 pandemic has started to hit the company hard. The auditors had completed most of their testing for the financial year ended 30 June 2020 during June and July. It is now mid-August and the auditors are coming in tomorrow fortheir closing meeting to discuss their main findings and any adjustments that will be required to the draft accounts. You are aware of at least one significant issue which requires to be discussed at the meeting. This relates to the fact that a significant debtor as at 30 June, Allman Bros. Ltd, has just recently been put into administration. Additionally, Allman Bros. Ltd has been disputing the quality of the work and hence the actual amount due. No payments have been received from that customer post year end. You are unaware as to whether the auditors are aware of this fact or not, but if none of the debt is recovered then the balance sheet position at the year end wouldmove from a net assets position of $2,500,000 to $700,000. What makes it worse is that the company has carried out further work for this client post year end to the sum of $650,000. The consequences of this do not bear thinking about. You have not yet had time to update your projections to take account of the likely impact of this potential bad debt and of the worsening economic environment which has seen many construction projectspostponed. The bad debt projections which the auditors had reviewed in June now seemto be very optimistic. You believe that theestimatesneed to be updated and a copy given to the auditors. Just as you are thinking this over, Joe, the Chief Executive, comes into your office. He asks whether you have updated the accounts and projections to take account of the new information. You advise that you are just aboutto do so and that the figures will be available later in the day. He advises you that there is no need and that what the auditors already have is sufficient for their purposes and that projections are a 'guesstimate'at the best of timesanyway. He also informs you that no adjustments should be processedfor the debtor which has gone into administration. You inform him that the auditors will probably demand that the year-end debt is provided forand that the projections now look overly optimistic given what has happened in the past few days,with your largest debtor now in administration and construction projectsthatyou had budgeted on winning being postponed indefinitely. He advises you to leave the discussions with the auditorsto him. AYN458: Ethics and Professional RelationshipsPage 7Joe concludes the conversation by addingthat: "As you know, this year has been extremely challenging for everyone and the bank is now putting pressure on me to send them a copy of the audited financial statements at the earliest possible opportunity. If the financial statements do not show the company to be in reasonable health then negotiating our new funding facilities is going to be very difficult at best. Remember, it is not only your job that is on the line -think of all the other 60 or so employees and their families. I'm sure that we will be able to trade through this downturn if we are only given a chance. It's not our fault that we find ourselves in this position -don't let them pull the rug out from under our feet.

"What do you do now?