SECTION A Answer at least two but not more than three questions from this section. (You are reminded that four questions in total are to be attempted with at least one from Section B.) 1. Elan plc was established in 1985 us a family-owned company making custom designed wedding dresses. It grew slowly into a nationwide company with branches in all major cities. Two years ago, Elan was acquired by an international conglomerate listed on the UK stock exchange. New management was brought in and dramatically changed the business. As well as new designs, the company increased prices and lowered costs. Against the predictions of industry commentators, the company has been able to produce spectacular results, with an average growth rate in sales of 10% per annum. It attributes this growth to its marketing strategies and deals, such as regular-savings plans to allow customers to save for their wedding dresses over a period of months. In February 2011, the company was featured on national television in a programme which suggested that not only was the company using illegal immigrants as cheap labour to produce its dresses but also that its monthly payment plan effectively charged its customers exorbitant rates of interest. This produced a dramatic downtum in demand and an unprecedented number of customers demanding their money back. With new orders drying up, Elan was unable to meet the demand for refunds. Its holding company provided temporary loans but it, too, was faced with a cash crisis. Both Elan and its parent are in talks with their bankers for additional funding to see them through what management believes is just a temporary crisis. Elan's financial accounting year ended on December 31, 2011. Aliba & Co are Elan's auditors. Elan's parent company is audited by another fimm. Both companies' audits for 2011 are continuing. The bankers have requested for audited financial statements for 2011 to be produced as quickly as possible. Required: (a) Identify the issues which the Aliba partner in charge of Elan's audit needs to consider before signing the auditors' report. (15 marks) (6) Assess the grounds on which Aliba & Co. may face litigation and the arguments which might be produced in its defence, if negotiations with the bankers fail. (10 marks)