Question 1:

You are being asked to assist in the planning of the audit ofVirgin Australia Holdingsby undertaking an analytical review of Virgin for the period 1/7/14 -30/6/19 with a view to establishing whether Virgin meets thefinancial requirementsto be classified as a going concern as per ASA570 for the reporting period ending30/6/19.

In undertaking an analytical review of Virgin, you are required to calculate and analyse key financial ratios relevant to assessing the ability of Virgin to continue as a going concern (see below). Your analysis should focus on calculating and discussing the following ratios for the period identified:

1.Current ratio

2.Quick ratio

3.Debt ratio

4.Times interest earned ratio

You arenotrequired to calculate any additional ratiosfor this question. You are only required to calculate the four ratios listed above.

Short-term debt-paying ability:

Current Ratio=Current Assets

Current Liabilities

Quick ratio=cash + marketable securities+ net accounts receivable

Current Liabilities

(These two ratios are measured of liquidity. It is apparent by examining these ratios that cash maybe useful to evaluate the ability to pay debts immediately, whereas the current ratio requires the conversion of assets such as inventory and accounts receivable to cash before debts can be paid.)

Ability to meet Long-term debt obligations:

Debt to equity ratio=total liabilities

Total equity

Times interest earned=profit before tax + interest expense

Interest expense

(A company's long-run solvency depends on the success of its operations and it's ability to raise capital for expansion, as well as it's ability to make principal and interest payments. These two ratios are key measures used by creditors and investors to assess a company's ability to pay it's debts.

The debt to equity ratio shows the extent of the use of debt in financing a company. If the debt to equity ratio is too high, it may indicate that the company has used up it's borrowing capacity and has no cushion for additional debt. If it is too low, it may indicate that available leverage isn't being used to the owner's benefits.

The ability to make interest payments is dependent on the company's ability to generate positive cash flows from operations. Thus, times interest earned shows how comfortably the company should be able to make interest payments, assuming that earnings trends are stable.)

Remember: Discuss the trends of the ratios from an auditing perspective.

Modified question 1:

You are asked to provide a report detailing whether Virgin meets the financial requirements to be assessed as agoing concern as per ASA570. Going concern can be defined as the ability of an entity to meet its short-term and long-term obligations for the following 12 months. For these questions, you will be using the financial reports of Virgin for the preceding 5 years to assess whether at 30/6/19, the entity has the ability to pay their short term, and long term obligations for the reporting year ending 30/6/19.

Remember you are undertaking the analysis for the reporting period ending 30/6/19 so any information from the 1/7/19 onwards should not be taken into consideration in your discussion. In other words, anything that has occurred from the 1/7/19 until 30/6/20 should not be discussed in assessing whether the entity is a going concern.

You have been provided with a listof 4 ratios to calculateand discuss. You are not required to calculate any additional ratios.

It is strongly recommended that you calculate these ratios for the period of 5 years which will make it easier for you to determine whether, over time, Virgin has been financially stable and hence in a position to be assessed as a going concern. It is up to you how you approach the presentation and discussion of the ratios you calculate. Think about how you can provide as much evidence as possible tosupport your assertion that Virgin is a going concern for the period ending 30/6/19.

Remember that your report is being prepared for the audit partner, who therefore, already has a comprehensive understanding of the theory regarding going concern and the use of financial ratios to assist in assessing going concern. This means you should not discuss why you need to undertake the analysis. You do not need to provide an introduction indicating what you are trying to do for this question. The audit partner is the one asking you toprovide an overview, so the audit partner is

already aware of the reasons for asking you to undertake this analysis.

Question 2:

For the reporting period ending 30th June 2019, identify and discuss two (2) events specific to Virgin that will assist the auditor in assessing whether it meets the requirements of being classified as a going concern as per ASA570.

Identify two (2) significant events which would assist the auditor is assessing whether Virgin is a going concern for the period ending 30/6/19. That is for the period 1/7/18 - 30/6/19. You are encouraged to use financial information relating to Virgin and the industry in which it operates for the period in question. This means you need to look for events which show that Virgin is in a stronger position, as a result of those events, allowing the entity to meet their short-term and long-term obligations for the subsequent reporting period (ending 30/6/20).

Look for events that indicate Virgin can improve their financial position, their cash position, their performance etc which in turn helps to reinforce the assessment of Virgin as a going concern. Please make sure that you reference the article(s) you use to identify the events for this question.

You must clearly address all aspects of this question:

1.What is the event?(A simple explanation will suffice for this part of the question - ie one sentence is sufficient). Make sure youuse headings to identify the eventsso it is easy to see the nature of the events when the audit partner (or in this case) are reviewing your report.

2.Whyis the event relevant to the assessment of going concern? Discuss the event identified in the context of how the event helps to show that the entity is in a greater (better) position to meet their short term and long-term obligations.For example, you might find an event that indicates that the entity signed a long term contract to be the major sponsor for a national sporting team in Australia. You would then need to explain why knowledge of this sponsorship would assist in assessing going concern (think about how it would impact on going concern).

Source of the annual report at the following link:

https://www.virginaustralia.com/au/en/about-us/company-overview/investor-information/annual-reports/

(period from 1/07/2014 to 30/06/2019=5 annual reports)

Apart from annual reports you can use other sources as well but make sure you have to include your sources in the reference list.