You are currently auditing Speed Pty Ltd (Speed), a subsidiary of Tech Ltd (Tech). Speed is an internet service provider that provides free internet access to its subscribers. In return, subscribers agree to provide their name, address and other details to Speed for the purpose of on-selling this information to various marketing firms. When Speed was established two years ago, its business plan stated that it would need 25,000 subscribers in order to break even. Speed has experienced demand far in excess of this but unfortunately, due to technological problems, it can only provide services to 21,000 subscribers at the present time. This has reduced the price that third parties are prepared to pay for subscriber information, as they need a certain volume of each type of consumer (for example, males aged 25-35 earning more than $60,000 p.a.) to make their marketing efforts worthwhile. Speed is the third-largest of seven free-access providers in the industry. The two biggest providers are each approximately 30 percent larger than Speed, and both are seeking to rapidly expand their customer base. Over the past few months, Speed has been negotiating to buy the business of one of its smaller rivals, Network Pty Ltd (Network). This would give Speed access to more subscribers and, more critically, access to Networks software, which has the capacity to support another 50,000 users.

In response to Speeds directors concerns regarding Speeds financial situation, Tech has agreed to become a lender of last resort should Speed need urgent financial assistance. However, Techs management has made it clear that this assistance will only be provided if Speed is in serious danger of going into receivership.

Speeds directors are all young whiz-kids with backgrounds in the computer and technology industries. Each has an equity share in the business. Recently the board split into two distinct factions, and relations among the board members are now less than harmonious. The financial controller has expressed concern that key business decisions are being delayed because the board is not focused on the business. Unresolved issues include a proposed additional capital injection from each of Speeds directors to see the company through its present difficulties.

Required:

a) List the factors that indicate that Speed may have a going concern problem. For each factor, identify and discuss any related mitigating factors.

b) Outline the key additional information you would need to obtain before reaching a conclusion on Speeds going concern status.

c) If all seven entities in the industry are experiencing software problems and are unable to satisfy demand for their services, how will this change the way you assess the going concern status of Speed?