Your company, Africa Lean Consulting, sells components to the electronics industry and has an annual turnover of 5m.

Recently the sales director has put pressure on you, the senior credit manager of the company, to approve a credit limit of 500k for a new customer. He is very excited about this new customer who has placed a large order with your company and expects to place similar orders on a regular basis.

However, you have some reservations about the customers ability to pay and are conducting a review of their latest published financial statements in order to collect some evidence to support your professional opinion that a much lower limit should be offered to the client.

The new customer, OMLT, is relatively new, having been incorporated only 3 years ago. Three young graduate entrepreneurs, Siya Dlodlo, Kay Khoza and Mike Mkhizewho developed a fashionable new product, So-Lite, a bag that contains a recharging port for mobile devices, own it. The bag makes use of a new flexible material used in the solar panel industry but incorporates stylish design and artwork that appeals to teenagers and young adults.

After an appearance on a national TV programme, Lions Cave, demand for their product has soared, especially among young consumers. One of the Lions, a well-knownentrepreneur of the UK, has agreed to invest in OMLTprovided all the material and production is sourced in the UK. OMLT has found it difficult to obtain sufficient quantities ofgood quality electronic components in the UK to meet production demand and has approached your company. The young entrepreneurs agree with the Crocodile that they need to source their supplies from the UK as they require quick production in keeping with the changing fashion trends and the demand for cutting edge technology. Hence the excitement of your sales director.

You have obtained a copy of OMLTs latest financial statements, dated 31 December, and are considering the following:

1. Explain to the sales director who has limited accounting

a) The significance of the specific audit opinion in the audit report of OMLT in supporting your case for a reduced credit limit.