Question $2$

Muscle Ltd$.\text{'}$s primary business revolves around the sale of massage equipment and

related consumables to various physiotherapists and hospitals. Muscle Ltd uses a

centralised automated sales system. During February $2023,$ a fire broke out in the

warehouse and stock to the value of R$950000$ was damaged. As the company is

insured, a debtor was raised for the insurance monies the stock loss was accounted for

in the financial records. The investigation by the insurance company has not been

concluded at year$-$end, $31$ March $2023.$

The stock loss caused a loss of revenue as well as further security costs and

alternative storage rental to allow the insurance investigation to be concluded. The total

financial loss suffered by Muscle Ltd for the financial year amounted to R$2,6$ million.

The current liabilities exceeded the current assets by $R1,2$ million at reporting date,

causing Muscle Ltd not to be able to settle the accounts payable in March $2023$ nor in

the three subsequent months.

The insurance investigation was concluded at the end of April $2023,$ reporting that the

fire was intentionally set by a disgruntled employee $-$ an act not covered in the

insurance contract. Muscle Ltd has maximised the bank overdraft facility and cannot

repay the instalments thereon. The materiality was set at R$280000.$

Required:

$2\mathrm{.}1$ Clarify how the uncertainties affecting Muscle Ltd$.\text{'}$s ability to continue as a

going concern should be disclosed in the company's financial statements.

$2\mathrm{.}2$ Management refused to disclose the uncertainties affecting the going concern of

Muscle Ltd in the financial statements. Explain what effect the non$-$disclosure

has on the audit opinion $($reasoning required, not an audit opinion$).$

$2\mathrm{.}3$ Explain how corporate governance is affected by management's refusal to

disclose the going concern uncertainties.