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T and B Limited is a large telecommunications company that is listed on a stock exchange. It is highly geared because, like many such companies,
T and B Limited is a large telecommunications company that is listed on a stock exchange. It is highly geared because, like many such companies, it borrowed a large sum to pay for a licence to operate a mobile phone network with technology that has not proved popular. The companys share price has dropped by during the last three years and there have been several changes of senior management during that period. There has been considerable speculation in the press over the last six months about whether the company can survive without being taken over by a rival. There have been three approaches made to the company by other companies regarding a possible takeover but all have failed, mainly because the bidders pulled out of the deal as a result of the drop in share prices generally. The company has net assets, but has found it necessary to severely curtail its capitalinvestment program. Some commentators consider this to be fundamental to the future growth of the business others consider that the existing business is fundamentally sound. It has also been necessary for the company to restructure its finances. Detailed disclosures of all of these matters have always been made in the financial statements. No reference has been made to the going concern status of the company in previous auditors reports on financial statements and the deterioration in circumstances in the current year is no worse than it has been in previous years. Required Describe the external auditors responsibilities and the work that the auditor should perform in relation to the going concern status of companies marks Describe the possible audit reports that can be issued where the going concern status of a company is called into question your answer should describe the circumstances in which they can be issued. marks On the basis of the information provided above, describe the audit report that you consider is likely to be issued in the case of T and B Limited, giving reasons. marks Explain the difficulties that would be faced by T and B if T and Bs audit report made reference to going concern issues.
T and B Limited is a large telecommunications company that is listed on a stock exchange. It is highly geared because, like many such companies, it borrowed a large sum to pay for a
licence to operate a mobile phone network with technology that has not proved popular. The companys share price has dropped by during the last three years and there have been
several changes of senior management during that period. There has been considerable speculation in the press over the last six months about whether the company can survive without
being taken over by a rival. There have been three approaches made to the company by other companies regarding a possible takeover but all have failed, mainly because the bidders
pulled out of the deal as a result of the drop in share prices generally.
The company has net assets, but has found it necessary to severely curtail its capitalinvestment program. Some commentators consider this to be fundamental to the future growth of the
business others consider that the existing business is fundamentally sound. It has also been necessary for the company to restructure its finances. Detailed disclosures of all of these
matters have always been made in the financial statements. No reference has been made to the going concern status of the company in previous auditors reports on financial statements
and the deterioration in circumstances in the current year is no worse than it has been in previous years.
Required
Describe the external auditors responsibilities and the work that the auditor should perform in relation to the going concern status of companies marks
Describe the possible audit reports that can be issued where the going concern status of a company is called into question your answer should describe
the circumstances in which they can be issued.
marks
On the basis of the information provided above, describe the audit report that you consider is likely to be issued in the case of T and B Limited, giving reasons. marks
Explain the difficulties that would be faced by T and B if T and Bs audit report made reference to going concern issues.
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