You are the audit manager of Violet & Co and you are currently reviewing the audit files for two of your clients for which the audit fieldwork is complete. The audit seniors have raised the following issues which you can assume are material:

(a)Client 1-Daisy Designs Co (Daisy)

Daisy's year end is September 30, 2019, however, subsequent to the year end the company's sales ledger has been corrupted by a computer virus. Daisy's 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. Daisy's revenue is $15.6 million, its receivables are $3.4 million and profit before tax is $2 million.

(b)Client 2- Fuchsia Enterprises Co (Fuchsia)

Fuchsia has been losing customers to its competitors 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 outflow. Management are confident that further funding can be obtained and so have prepared the financial statements on a going concern basis with no additional disclosures; the audit senior is highly sceptical about this. The prior year financial statements showed a profit before tax of $1.2 million; however, the current year loss before tax is $4.4 million and the forecast net cash outflow for the next 12 months is $3.2 million. For each of the two issues:

Required:

For each client:

i) Discuss the issue

ii) Recommend one audit procedure the audit team should undertake at the completion stage to try to resolve the issue; and

iii) Describe the impact on the audit report if the issue remains unresolved