Pharma Co (PC) is an established pharmaceutical company that has for many years generated 90% of its revenue through the sale of two specific cold and flu remedies. PC has recently seen a spike in the level of competition that it faces in its market; demand for its products has significantly declined. To make matters worse, in the past, the company has not invested sufficiently in new product development and so has been trying to remedy this by recruiting suitably trained scientific staff, but this has proved more difficult than anticipated.

In addition to recruiting staff, the company also needed to invest $2 million in plant and machinery. The company wanted to borrow this sum but was unable to agree to suitable terms with its bank; therefore it used its overdraft facility, which carried a higher interest rate. Consequently, some of PC's suppliers have been paid much later than usual and hence some of them have withdrawn credit terms meaning the company must pay cash on delivery. As a result of the above, the company's overdraft balance has grown substantially.

Management has produced a cash flow forecast and this shows a significantly worsening position over the coming 12 months.

Management has informed you (the external auditor) that the bank overdraft facility is due for renewal next month. They are confident that it will be renewed. They also strongly believe that the new products which are being developed will be ready to hit the market soon. They expect sales levels to improve and that the company is a going concern. Therefore, they do not intend to make any disclosures in the financial statements regarding going concern.

Required:

Identifysixpotential indicators that the company isnota going concern and describe why these could impact upon the ability of the company to continue operating on a going concern basis.