You are the audit partner in each of the following independent and material scenarios.

1. The audit client's financing arrangements are about to expire, and the firm has not as yet been able to secure replacement financing. If they are unsuccessful in arranging replacement financing the client firm may have to consider filing for bankruptcy. After evaluating the audit client's situation, you believe that the going concern assumption may no longer be appropriate. You have advised the client that they should use liquidation values in the preparation of their financial statements. The client has followed your advice in using liquidated values and included the relevant disclosures required by accounting standards in this situation. You have reviewed their financial statements and believe that the disclosure is adequate. (2 marks)
2. You are auditing Franklin Ltd which manufactures electrical supplies. During your examination of the lease expense account you believe there is a possibility that there is a material overstatement. Unfortunately, management refuses to allow you to expand your audit work to verify whether the account is actually misstated. (3 marks)

Required:

In each scenario, analyse and explain how the situation would affect your audit report.