Question
You are the audit manager of CAPM & Co., a local firm of Chartered Accountants located in Lapaz in the Greater Accra Region. You are
You are the audit manager of CAPM & Co., a local firm of Chartered Accountants located in Lapaz in the Greater Accra Region. You are currently reviewing the audit files for several of your clients for which the audit fieldwork is complete. The Audit Senior has raised the following issues: (a) African Designs Co. Ltd (ADCL): ADCLs year-end is 30th September, however, subsequent to the year-end the companys sales ledger has been corrupted by a computer virus. ADCLs Finance Director was able to produce the financial statements prior to this occurring; however, the audit team has been unable to access the sales ledger to undertake detailed testing of revenue or year-end receivables. All other accounting records are unaffected and there are no backups available for the sales ledger. ADCLs revenue is GH15.6 million, its receivables are GH3.4 million, and its profit before tax is GH2 million. (b) Ghana Design Co. Ltd (GDCL): GDCL has experienced difficult trading conditions and as a result, it has lost significant market share. The cash flow forecast has been reviewed during the audit fieldwork and it shows a significant net cash flow. Management is confident that further funding can be obtained and so has prepared the financial statements on a going concern basis with no additional disclosures; the Audit Senior is highly skeptical about this. the prior year's financial statements showed profit before tax of GH1.2 million; however, the current year's loss before tax is GH4.4 million and the forecast net cash outflow for the next 12 months is GH3.2 million. Required for each of the two issues: (i) Describe the impact on the audit report if the issues remain unresolved. (ii) Recommend procedures the audit team should undertake at the completion stage to try to resolve the issue.
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