You are carrying out the audit of ACB Computers limited for the year ended 31
December 2003. The company assembles microcomputers purchased from the Far
East and sells them to retailers, and to individuals and other businesses. In the current
year, there has been a recession and strong competition, which has resulted in a fall in
sales and the profits. This has led to a trading loss and the company is experiencing
going concern problems.
Required
a) Describe the factors, which indicate that a company may not be a going concern.
Your list should include all factors and not just those, which relate to ACB
Computers Limited. (10
Marks)

b) Consider the form of audit report (i.e. qualified or unqualified) you would issue of
ACB Computers limited if you conclude that the company is experiencing serious
going concern problems, in the following two situations:
I) You conclude that the financial statements give sufficient disclosure of the
going concern problems.
II) There is no disclosure of the going concern problems in the financial
statements and you believe there is a serious risk that the company will fail in
the foreseeable future (6 marks)
c) State the parties who may successfully sue you as auditor for negligence, and
consider the arguments you could include in your defense when:
I) The financial statements of ACB Computers Limited for the year ended 31
December 2003 do not mention any going concern problems and your audit
report on these financial statements was unqualified and
II) The company fails on 15 February 2004 (4 marks)