Question $1$

$(40$ Marks$)$

T and B Limited is a large telecommunications company that is listed on a stock exchange. It is highly geared because, like many such companies, it borrowed a large sam lo pay for a licence to operate a mobile phone network with technology that has not proved popular. The company's share price has dropped by $50\%$ during the last trree years and there have been several changes of senior management during that period. There has been considerable speculation in the press over the last six months about whe leter the company can sumve without being taken over by a rival. There have been three approaches made to the company by other companies regarding a possible takeover but all have faled, manhy because the bidders pulled out of the deal as a result of the drop in share prices generally.

The company has net assets, but has found it necessary to severely curtail its capitalimestment program. Some commentators consider this to be tundamental to the Gfure gronth of the business; others consider that the existing business is fundamentally sound. It has also been necessary for the company to restructure its frances. Detaied disclosures of all of these matters have always been made in the financial statements. No reference has been made to the gcing concern status of the company in previous auditor's reports on finarcial statese and the deterioration in circumstances in the current year is no worse than it has been in previous years.

Required

$1\mathrm{.}1.$ Describe the extemal auditor's responsibilifies and the work that the audtor should perform in relation to the going concem status of companies

$(15$ marks$)$

$1\mathrm{.}2.$ Describe the possible audit reports that can be issued where the going concern status of a company is cated into question; your answer should describe

$(10$ marks$)$ the circumstances in which they can be issued.

$1\mathrm{.}3.$ On the basis of the information provided above, describe the audit report that you consider is likely to be issued in the case of $T$ and $B$ Limied. giving reasers.

$(5$ mans$)$

$1\mathrm{.}4.$ Explain the difficultes that would be faced by $T$ and $B$ if $T$ and $B\text{'}$s audit report made reference to going concern issues.

$(10$ mats$)$