Auiding

FACULTY OF BUSINESS MANAGEMENT

STUDENT ASSIGNMENT COVER SHEET

Module Name and Level	AUDITING Level 3
Module Code	AC34-3
Assessment Type and weighting:	Individual Report

Auditing (AC 34-3)

Individual report

Assessment weighting: 50%

Bashayar Co is a company which designs and manufactures engine parts. Young and Ernst  are the auditors for Bashayar Co . You are the audit  team leader of Young and Ernst  and in charge of the audit of Bashayar Co.The audit of the financial statements for the year ended 31 July 2018 is nearing completion and you are reviewing the working papers of the going concern section of the audit file.

The draft financial statements recognise the following

·       A net loss of OMR500,000 and

·       Total assets of OMR13.8 million.

The financial statements of 2017 recorded the following

·       A profit of OMR760,000 and

·       Total assets of OMR14.4 million. 

The audit senior has left the following note for your attention: ‘I have performed analytical review on Bashayar Co’s year-end financial statements.

The current ratio is 0·8 against the 2017 ratio of 1·2. The quick ratio is 0·5 against the 2017 ratio of 1·6. The latest management accounts show that ratios have deteriorated further since the year end, and the company now has a cash balance of only OMR25,000.

Bashayar Co has a long-term loan outstanding of OMR80,000 with a contract condition  attached, which states that if the current ratio falls below 0·75, the loan can be immediately recalled by the bank.

You are also aware that one of Bashayar Co’s best-selling products, the Quick Fire, has become technically obsolete during 2018 as customers now prefer more environmentally friendly engine parts. Historically, the Quick Fire has generated 45% of the company’s revenue. In response to customers’ preference, OMR 1.3 million has been spent on designing a new product, the GreenFire, due for launch in February 2019, which will be marketed as an environmentally friendly product.

A cash flow forecast has been prepared for the year to 31 July 2019, indicating that based on certain assumptions, the company’s cash balance is predicted to increase to OMR 220,000 by the end of the forecast period.

Assumptions include:

·       The successful launch of the GreenFire product.

·  The sale of plant and machinery which was used to manufacture the QuickFire, generating cash proceeds of OMR 50,000 in January 2019.

·  A reduction in payroll costs of 15%, caused by redundancies in the QuickFire manufacturing plant.

The receipt of a grant of OMR30,000 from a government department which encourages innovation in environmentally friendly products, scheduled to be received in February 2019.

Disclosed in notes to financial statements: is a Contingent liability for OMR 1 million. The contingent liability relates to a bank guarantee letter given to Zamzam Co.  Zamzam Co is one of the main suppliers of direct material for Bashayar Co’s . The bank guarantee had been given as a f orm of support for the supplier company who was  facing difficult trading  conditions.

Bashayar Co’s has recently been experiencing trading difficulties,  A major customer who owes OMR 1.5 million to Bashayar Co’s has declared insolvency.  It is unlikely that the amount will be recovered. However, the balance is included within the financial statements. The Marketing director has recently left Bashayar Co and has yet to be replaced. As a result of the weak current cash flow situation, the company has been slow in paying its suppliers and some are threatening legal action to recover the sums owing.

Given these circumstances it was decided that no dividends would be paid to shareholders. And after a  decade of healthy dividend payments, the company decided to not  pay dividends for the current financial year.

Having completed the file review, you have concluded that the use of the going concern assumption is appropriate, but that there is significant doubt over BashayarCo’s ability to continue as a going concern.

You have advised the company’s audit committee that a note is required in the financial statements to describe the significant doubt over going concern. The audit committee is reluctant to include a detailed note to the financial statements due to fears that the note will highlight the company’s problems and cause further financial difficulties but have agreed that a brief note will be included.

Required:

Using the information above:

1.    Identify and explain the matters which cast doubt on the going concern status of Bashayar Co. 

2.    Other than the indicators covered by the case above, discuss other indicators which may indicate lack of going concern status of an organisation.

3.    Discuss the procedures that  you would carry out in respect of the cash flow forecast of Bashayar Co.

4.    Describe relevant audit procedures which you should perform in assessing whether Bashayar Co is a going concern.

5.    Discuss the implications for the audit report and outline any further actions to be taken by the auditor.

Grading Criteria:

The grading of the Written Report will be based on:

The report will be assessed according to the criteria given below:

·          Information and Research Completion of Tasks (20 %)

·          Understanding of Issues (20 %)

·          Application and Analysis (35%)

·          Presentation and structure (15%)

·          References (10%)

INSTRUCTIONS

1.    This is an individual report.

2.    The assignment MUST be submitted on-line (through MOVE) on or before the due date i.e24.11.2018.

3. Your assignment shall reflect the depth and breadth of your original analyses in a clear and coherent manner.

4. Use of the relevant academic literature to support ideas and issues discussed. The range of academic sources such as texts and journals to support your arguments and comments.

5.  Any reference to authors and other writers shall be quoted with due acknowledgement in your assignment report using the Harvard Referencing System. For details of Harvard referencing style refer the student’s hand book page 46-47 section7.2.

6.    This is an individual assignment and carries a 50 % of the module grade.

7. This assignment follows a reportformatand must be original and creative. An analytical piece of work is required. The use of ‘cut and paste’ approach will be penalized. It must be presented in a structured manner, with appropriate cover page, content page, introduction, body (with appropriate heading / sub-headings), conclusion, references, page numbered and any required appendices.

8.    Your essay should be word processed and professionally presented. The length of your essay should be between 2500 words (+/- 10%), presented in text of font size 12 with 1.5-line spacing. Please state the exact word count at the end of the assignment.

9.   The cover page should be attached with the assignment and uploaded through MOVE (on-line. Name of the student, The Programme, Module Title, Assignment Title and number of words must be reflected on the cover sheet.

10. All assignments must be adhered strictly to the deadlines specified by Majan College. Failure to hand in the assignment for any reason and without prior approval and a valid written extension from the module tutor will not be marked and will be awarded a grade G (0) irrespective of the quality of the work. See Student handbook page 16-17section 4.4.

11. Unacknowledged use of work of others (plagiarism) is regarded as a dishonest practice and will be will be penalized. See the penalties in the student’s handbook page 35-36 section 5.8.

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