Enable Movement Ltd (Enable) makes and sells mobility aids that are for the benefit of elderly people as well as disabled adults and children. It has warehouses across the country and its customer base includes retailers as well as individuals, to whom direct sales are made through their website. The company's year-end is 31 October 2021.

In June 2021, Enable had a dispute with its Finance Director (FD), Ann Ashley and she immediately left Enable. As a temporary move, Enables financial controller took over the FDs role until a more permanent replacement could be found. The financial controllers previous responsibilities of reconciling the purchase day book and purchase ledger have been put on hold until a new FD is recruited.

In order to improve the manufacturing process, Enable placed an order in May 2021 for 500,000 of new plant and machinery. A half of this order was received before the year-end, and the remaining half should be received in January 2022. This split delivery has proved fortuitous for Enable as it has allowed them sufficient time to secure an additional loan for the second half of the plant and machinery order.

Enable will use the new plant and machinery to move into the European market. But due to Brexit implications, will now require additional licencing before it can sell its products. The first application of the license was rejected by the regulators and Enable is currently working on an improved application.

Your firm, Roberts LLP are Enables auditors. You are part of the audit team performing its audit.

Required:

a) Analyse the actions that Roberts LLP should carry out to try and ascertain whether Enable is a going concern. You should refer specifically to Enables circumstances in your answer.

(6 marks)

b) If Roberts LLP decide in their professional opinion that Enable is not a going concern and Enable refuse to prepare their financial statements on this basis, what sort of audit report should Roberts LLP provide?

(3 marks)

c) The auditor can review ISA 560 Subsequent events to obtain guidance on the relevant procedures to identify subsequent events. Critically evaluate four of these procedures relevant to Enable.

(4 marks)

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QUESTION 3 (continued)

Druid Designs Ltd (Druid) was established in 1970 and manufactures and designs Celtic jewellery using precious metals such as silver, gold and platinum. Druid is not listed on a stock exchange and its shares are held by 8 individuals from the same extended family. No individual holds more than 15% of the share capital of Druid.

All of the executive directors are shareholders. As family members, they gained experience in both production and management techniques when they began working for the company. There are no non-executive directors.

The Financial Director (FD) post is currently vacant as the former FD, Melanie Jones, left the company as she had no professional accountancy training and she found the role very stressful without the necessary qualifications. Druid has a small internal audit department, although the chief internal auditor frequently comments that the board of Druid do not understand his reports or provide sufficient support for his department or the internal control systems within the company.

Thomas LLP are the company auditors and have been for the last seven years. They have also expressed concern about the internal control systems and the fact that the internal audit department focuses their work on control systems, not financial reporting. Thomas LLP are appointed by and report to the board of Druid.

The grandson of Druids founder has decided to expand the company significantly. In order to do so, a bank loan is required. However, the bank has said that before they supply the loan, the company will need to introduce more corporate governance measures to improve the quality and control of its financial reporting.

Druids board are considering a proposal from the chief internal auditor to establish an audit committee. The committee would consist of one executive director, the chief internal auditor as well as three new appointees. One appointee would have a non-executive seat on the board of directors.

Required

d) Analyse four roles of an audit committee that would benefit Druid.

(8 marks)

e) Outline two advantages and two disadvantages that could arise if Druid outsources its internal audit department.