QUESTION ONE

You are the auditor of Matatizo Company Limited. The company is listed in the Stock exchange and is involved in importation and wholesaling of furniture. The company faces strong competition in the market and is incurring losses. The wind of competition is from local fundi whose prices are relatively cheaper. Balaa Ltd is a wholly owned subsidiary of Matatizo Ltd.

Balaa is involved in the local production of furniture. Although initially profitable, Balaa has recorded an operating loss during the current financial year.

Sufficient appropriate audit evidence gather during the audit of Matatizo Ltd for the year ending 31 Dec 2022 indicated the following:

(a) The company proposed to offer shares in 15 May 2023. The details of the offer are disclosed in the Directors Report. The ability of the company to continue as a going concern depends on how the public will respond to the proposed offer. Directors of Matatizo Ltd has prepared the financial statement on a going concern basis.

(b) The banker of Matatizo Ltd requires the audited financial statements not later than 15 April 2023.

(c) At the date of your audit report, you were unable to establish how the public will respond to the proposed share offer in 15 May 2023.

(d) No other circumstance have come to your attention that would cause you to modify the report.

Required:

Draft audit report for the year ended 31 Dec 2023 based on the above evidence.