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During the audit of Honey Company, the external auditors, Nectar and Co . , are examining and attempting to understand the liquidity and solvency of
During the audit of Honey Company, the external auditors, Nectar and Co are examining and attempting to understand the liquidity and solvency of their client. Honey Company operates in an industry where receivables, often from overseas, typically take longer to be collected. The external auditors have also determined that a longterm loan will mature in the next year as well as a significant longterm lease being up for renewal in the next three months. In order to accurately assess Honey Company's liquidity and solvency, the external auditors should
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advise the client to immediately refinance the longterm loan in order to improve liquidity ratios, and delegate analytical procedures to the internal audit function
conduct analytical procedures to determine trends in liquidity, solvency, and receivables turnover ratios, and also inquire of management regarding details of lease renewal costs
examine key liquidity and solvency ratios using data available for the most recent fiscal year, in addition to conducting analytical procedures to confirm historical lease payments and the associated lease expense
attempt to send confirmations to overseas clients to ascertain collectability ratios and potential bad debt expense, as evidence of high collectability patterns will ensure liquidity and solvency
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