—Cool Look Limited Cool Look Limited (CLL) is a high-end clothing design and manufacturing company that has been in business in Canada since 1964. CLL started as an owner-managed enterprise created and run by Hector Gauthier. Its ownership has stayed within the family, and Martin Roy, Hector's grandson, is the newly appointed president, chief executive officer, and chair of the board of CLL.You are a Chartered Professional Accountant and the audit senior on the CLL audit for its fiscal year, which ended November 30, 2020. Today is December 9, 2020, and you are reviewing correspondence from CLL's bank. You come upon a letter dated November 1, 2020, from the bank's credit manager that causes you some concern (Exhibit I). You pull out your notes from your review of the board's minutes (Exhibit II) to clarify your thoughts.EXHIBIT ILetter to CLL from bankNovember 1, 2020Dear Sir:We have reviewed CLL's internal third-quarter financial statements, dated August 31, 2020. As a result of this review, we have determined that your financial ratios continue to decline and that you are in default of the covenants in our agreement for the second consecutive quarter.However, since the bank and CLL have a long history, and because CLL continues to make required debt payments on time, we are willing to extend the $6,000,000 secured operating line of credit until the end of February 2021.Based on CLL's February 28, 2021, internal financial statements, we will expect CLL to meet the following financial ratios. If this is not done, we reserve the right to call the loan at that time.Ratios:Current ratio no less than 1:1Maximum debt-to-equity ratio (Debt/Debt + Equity) of 80%; debt is defined as total liabilities.We thank you for your business.Yours truly,Mr. Charles BurberyCredit ManagerEXHIBIT IIExcerpts from notes taken during review of board minutes•August 7, 2020. Management presented a document

discussing the temporary cash crunch at CLL. Management presented options to conserve cash until the Christmas buying season, when a new large contract with a U.S. chain of stores begins. One alternative was to delay remitting HST and employee withholding. The board passed a resolution to temporarily delay remitting HST and employee withholding until cash flows improved.•September 5, 2020. The board received in

ion from management regarding an incident at the factory. Some dirty rags had caught fire in a metal garbage can. The fire was put out quickly and no damage was done. Management and the board were quite relieved that the fire had not spread because CLL has not renewed its fire and theft insurance this year due to the need to conserve cash. For the same reason, CLL has not renewed the directors' liability insurance. The board decided that the renewals would be done immediately after cash flows improved.•November 10, 2020. The board passed a motion to allow Martin Roy to postpone repayment of his interest-free shareholder loan by another six months to May 31, 2021. He owes CLL $500,000.Financial facts•The November 30, 2020, unadjusted financial statements show CLL's current ratio is 1.64:1.•If the long-term debt is reclassified as a current liability, the current ratio would be 0.42:1.•The $500,000 shareholder loan to Martin Roy is also classified as long term; however, if it is classified as current, the ratio would decline further.•The debt-to-equity ratio is 85.8 percent.•The company has traditionally had a history of positive earnings; however, in the last two years, it has reported a net loss.•Cash on hand is $1,094,000.•Accounts payable have increased by more than 100 percent.•Share capital is reported on the 2020 balance sheet at $10,386,000.•CLL's long-term debt includes the $6-million secured operating line of credit. The line of credit is a revolving loan, which the bank can call on three months' notice if certain financial covenants are not met. It had been classified as long-term debt in 2019 because the bank waived its right to call the loan before December 1, 2020. What facts indicate that CLL may not be a going concern? What facts indicate that CLL may be a going concern? Make a conclusion on whether you believe it is appropriate to assume the company will remain a going concern.b.  What are the risks related to the shareholder loan? What are three recommended procedures the auditor should perform related to the shareholder loan?