You are currently auditing Speed Pty Ltd (Speed), a subsidiary of Tech Ltd (Tech). Speed isan 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 ofon-selling this information to various marketing firms. When Speed was established twoyears ago, its business plan stated that it would need 25,000 subscribers in order to breakeven. Speed has experienced demand far in excess of this but unfortunately, due totechnological 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, asthey need a certain volume of each type of consumer (for example, males aged 25-35 earningmore than $60,000 p.a.) to make their marketing efforts worthwhile.

Speed is the third-largestof seven 'free-access' providers in the industry. The two biggest providers are eachapproximately 30 percent larger than Speed, and both are seeking to rapidly expand theircustomer base. Over the past few months, Speed has been negotiating to buy the business ofone of its smaller rivals, Network Pty Ltd (Network). This would give Speed access to moresubscribers and, more critically, access to Network's software, which has the capacity tosupport another 50,000 users.

In response to Speed's directors' concerns regarding Speed's financial situation, Tech hasagreed to become a 'lender of last resort' should Speed need urgent financial assistance.

However, Tech's management has made it clear that this assistance will only be provided ifSpeed is in serious danger of going into receivership. Speed's directors are all young 'whiz-kids' with backgrounds in the computer andtechnologyindustries. Each has an equity share in the business. Recently the board split into two distinctfactions, and relations among the board members are now less than harmonious. Thefinancial 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 Speed's directors to see the company through itspresent difficulties.

Required:

a) Outline the key additional information you would need to obtain before reaching a

conclusion on Speed's going concern status. (10 Marks)

b) 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? (10 Marks)