You are the senior on the audit of ACE Ltd. whose principal activities are road transport and warehousing service and the repair of commercial vehicles. You have been provided with extracts from the draft accounts of for the year ended 30th June 2016:

Summary information Draft 2016 Actual 2015

('000) ('000)

Summary Income Statement

Revenue 10971 11560

Cost of sales (10203) (10474)

Gross profit 768 1086

Administrative expense (782) (779)

Interest charge (235) (185)

Net profit (loss) (249) 122

Summary statement of financial position

Non-current asset 5178 4670

Current asset:

Inventory 95 61

Receivables 2975 2369

Current liabilities:

Bank loan 250 -

Overdraft 1245 913

Trade payable 1513 1245

Lease obligation 207 -

Other payable 203 149

Long term liabilities:

Bank loan 750 1000

Lease obligation 473 -

Net asset 3607 3793

You have been informed by the MD that the fall in revenue is due to:

the loss of a long standing customer to a competitor

a decline in trade in the repair of commercial vehicles

Due to the reduction in repair business, the company has decided to close the workshop and sell the equipment and spare inventory. No entries resulting from the decision are reflected in the draft accounts. During the year the company has replaced a number of vehicles funding them by a combination of leasing and increased overdraft facility. The facility is to be reviewed in January 2017 after the audited accounts are available. The draft accounts show a loss for 2016 but the forecast indicates a return to profitability in 2017 as the MD is optimistic about generating additional revenue from new contracts.

Requirements:

i) State the circumstances particular to ACE Ltd. which may indicate that the company is not a going concern. Explain why these circumstances give cause for concern.

ii) Describe the audit procedure to be performed in respect of going concern at ACE Ltd.