Read the following case study and answer the questions that follow:

Company overview:

A mobile company (Mobile X Ltd.) has hired a new auditing firm. There have been some rumors regarding the company, and the shareholders would like a new auditing firm to prepare the auditing report. The auditing company has sent one experienced auditor and one newly qualified auditor to prepare the report.

Sales department: The following have been noted as customer complaints:

-the phone speed is very slow -Battery life is very short -camera is not in line with competitors

There have been two serious complaints from customers, relating to the battery catching alight while charging. This is being investigated but no claims have been made yet. The management acknowledged they had received a few complaints about how long the battery lasted and have started looking at alternative suppliers for new batteries.

Management says they have responded to all customer complaints in a timeously manner and that customers who have had problems with their batteries have been reimbursed or given a replacement phone.

However, when reviewing the records, the auditor cannot find record of the reimbursement or replacement of phones. The manager was able to produce a photocopy of the request for prices from the new potential supplier.

The auditor decided to arrange a meeting with these suppliers personally to confirm this.

Suppliers: The Accounting system indicates that the suppliers have been paid for the month, but the auditor was unable to find supporting evidence of this. The manager verbally reassured the auditor that this had been done. The auditor called the suppliers himself to determine whether payment had been received for the month as well as past payments. After a discussion with the various suppliers, it seems that most payments are made late or only partially paid. He asked the supplier to also send the original copies of the invoices issued. Most suppliers have now stopped credit terms and have agreed to cash on delivery only. Human resources (HR) Payroll indicates that staff are paid on the 25th of every month but when talking to employees many of them say they only receive their salaries on the 26th or 27th of the month. The new auditor has reviewed the attendance records of the staff for the month as well as the biometric system which is linked to the cameras in the HR office, which the auditor reviewed. He also manually rechecked all calculations of wages to staff and could not find any discrepancies. Additional information: The auditor has decided to use computer assisted auditing techniques (CAATs) to help him with the process. The first software he has installed is AuditBoard. He has also created a dummy customer transaction which he has then put through the system to see how it would be recorded. The auditor has calculated the following financial ratios for the year and compared them to the results the company was hoping to achieve. Mobile X Ltd. Financial ratios Ratio Actual Budget (expected) Gross profit percentage 40% 45% Net profit percentage 25% 40% Trade payables ratio 70 days 30 days Current ratio 1.35:1 1.40:1 Acid test ratio 0.85:1 0.80:1

The companys year end is the 31st March 2020.

Answer the following questions related to case study and provide examples where applicable. You may include research you have conducted in your answer but remember to use your own words and quote the resource you have used. 1. Why is it so important for the auditor to determine if the company is a going concern? PC5.1

2. Do you think this company will continue to operate for the foreseeable future? Use 3 examples from the case study to support your opinion. PC5.1