The auditor has determined that there is a material going concern uncertainty at the company due to their inability to comply with the requirements to refinance the companys debt. In addition, the company is suffering from losses and negative cash flows due to poor economic circumstances. The bank has refused to renew the borrowings and the directors now have no option but to cease to trade. Inquiries of management have not revealed any practical plans or solution to deal with the problem. From this case answer questions number 47 and 48:

Question 47

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Is it appropriate for the company to prepare its financial statements on a going concern basis?

a.

No, the company cannot prepare its financial statements on a going concern basis because of material uncertainty that exists and management have no option but to cease trade as well as they have no practical plan to solve the problem.

b.

Yes, the company can prepare its financial statements on a going concern basis. No additional disclosure is necessary in the auditors report.

c.

No, the company cannot prepare its financial statements on a going concern basis because there is no material uncertainty that exists in the entity.

d.

Yes, the company can prepare its financial statements on a going concern basis because a material uncertainty exists.

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Question 48

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Suppose that the financial statements have been prepared using the going concern basis of accounting but, in the auditors judgment, managements use of the going concern basis of accounting in the preparation of the financial statements is inappropriate, what should be the opinion of the auditor in their report?

a.

No Opinion

b.

Disclaimer Opinion

c.

Unqualified Opinion

d.

Adverse Opinion

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You are part of the Grant Thornton audit team working on the audit for Leather Shoes Company for the year ending December 31, 2020. Leather Shoes specializes on womens designer footwear. You observed the following in the course of your audit. Analyze the type of fraud that can occur in this situation on question number 49 and 50:

Question 49

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On 1 August 2020, Leather Shoes obtained additional financing from Bank Muscat. You suspected that the Chief Finance Officer tried to conceal decreases in sales revenues since his bonus and additional benefits depends on the achievement of sales targets.

a.

Misappropriation of assets

b.

This is only an error.

c.

There is no risk of fraud.

d.

Fraudulent financial reporting

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Question 50

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The staff in-charge of purchases bring home excess leather materials that the company paid for and reports that they were lost. No one in the company checks whether the materials have been delivered or not.

a.

This is only an error.

b.

Fraudulent financial reporting

c.

There is no risk of fraud.

d.

Misappropriation of assets

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