Joseph Morgan is an audit senior with Harry & Associates. Joseph is involved in planning the audit of Quality Tire LTD (QTL), a manufacturer of tires for luxury private jets. QTLs operations are financed by a combination of long-term debt and short term loans from a financial institution, Bankville Ltd.

As part of the planning process Joseph has noted the following matters:

• QTL has been in a loss-making position for several years, but has recently successfully expanded its operations to manufacture a new type of tires for export to Singapore.
• One of QTLs major customers (Luxurious Jets), which represents 50 per cent of QTLs annual sales, has indicated that it started to manufacture its own tires.
• The strength of the Australian dollar against foreign currencies has had an adverse effect on demand for locally produced tires. Competition in the industry is becoming more intense, with some suppliers of tires actively importing tires from Chinese suppliers at a much lower cost.
• A discussion held with the company solicitor indicated that there has been a push to change the regulation on the re-treaded tires due to potential safety concerns. The forthcoming regulation will significantly increase QTLs input costs.
• Bankville Ltd has requested cash flow forecasts for the coming year to support the financing arrangements that are currently in place. QTLs level debt has remained constant in recent years and it had a positive working cash flow position to 31 December 2016.

Required:

Identify the indicators of a going concern problem and propose mitigating factors.