Buildmat Co (Buildmat) is a dealer in building materials. It has a good track record of growth and profitability for the last six years. However, due to the recent pandemic, there has been significant reduction in construction activities. Naturally this has adversely affected the business of Buildmat for the current year.

Chan and Chan, Chartered Accountants, have been the auditor of Buildmat for the last six years. You are the audit manager in Chan and Chan with responsibility for the audit of Buildmat's accounts for the year ended 31 December 2020. You have extracted the following data from the draft accounts for the current year and the audited accounts for the last year.

	Year ending 31 December 2020 DRAFT	Year ending 31 December 2019 ACTUAL
	$m	$m
Inventory	0.9	0.8
Accounts receivable	1.2	0.6
Cash	0.1	1.2
Accounts payable	1.9	1.5
Bank overdraft	0.8	-
Loan payable	2.0	-

                 

Sales for the current year have dropped by as much as 60% compared to last year's revenue. There is no immediate sign of recovery and the present condition is likely to continue at least for the next 12 months.

The company has reduced the year-end staff bonus by 50%. Naturally staff morale is low and many employees are looking for opportunities outside the organisation. In fact, you understand from the personnel department that the staff turnover rate has hit an all-time high of 19%. The monthly wages, used to be paid on the last work day of each month, has been delayed to the middle of the next month for the last few months.

From the ageing analysis of accounts receivable you have noticed that the percentage of overdue accounts (i.e., balances due for more than 60 days) has increased from last year's 20% to 55% this year. There has been a major change in sales personnel during the year. Most of the people are relatively new with little or no knowledge of collection efforts. They are not putting much effort in debtors’ collection as they seem to think that this responsibility rests entirely with the accounts department.

Buildmat used to pay an interim dividend each year which has been stopped in the current year. This does not seem to bother the shareholders too much as they expect it to be compensated by a higher dividend in subsequent years.

Buildmat has established an excellent relationship with its long-time vendors who have always supported the company with quality products delivered on time. In view of the current difficult situation, Buildmat has extended supplier payment from 30 days to 70 days. Vendors' reaction to this delayed payment is mixed.   

Required:     

1. Identify five (5) potential factors and briefly explain why these factors may indicate that Buildmat is not a going concern.                                                                   

2. Describe five (5) audit procedures you would perform to assess if Buildmat is a going concern or not.