Question
You are with the Audit partner reviewing the following 2 situation from 2 different clients Dangote and Bata at the conclusion of the audit. i)Dangote
You are with the Audit partner reviewing the following 2 situation from 2 different clients Dangote and Bata at the conclusion of the audit.
i)Dangote is one of the leading Cement manufacturing companies in Zambia as you are reviewing the audit with the Audit partner you come across the following situation. Dangote made deposits with an overseas supplier totalling K11, 500,000 for the supply of dicalcium silicate. On October 27, the supplier closed due to political unrest in the country. Dangote Cement hired an international trade consultant to gain more information about the situation. The consultant concluded on January 11 that it is unlikely that the deposit will be recovered. Dangote Cement purchases over K69 million worth of items from this supplier every year. Year-end for the Dangote Cement audit is December 31, and the audit report is due to be signed on February 26.
Required
a. Discuss what audit procedures would be used to gather evidence about this situation. ? (5 marks)
b. What is the appropriate treatment of this item in the December 31 financial statements? (5 marks)
ii) Another client that you are reviewing with the audit partner is Bata Shoe Company. Since January 2020, Bata has experienced a slowdown in sales as evidenced by lower inventory turnover ratios. Slower inventory turnover has negatively impacted operating cash flow, which has resulted in Bata paying some of its suppliers late. Some of the smaller suppliers are demanding that Bata pay cash on delivery of inventory items. The audit partner is also aware of correspondence between Bata and its bank that indicates the company started having cash flow problems as far back as 2019. Batas management is convinced that business will pick up and therefore has not laid off any employees or made any other strategic changes to try and improve cash flow.
Required
Discuss any significant events or conditions that the audit partner will consider when evaluating if there is substantial doubt about Batas ability to continue as a going concern.( 5 m
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