Bingham Engineering
You are auditing the financial statements of Bingham Engineering Co for the year ended 31 March 20X7, which is experiencing going concern problems.
The company prepares monthly, as well as annual financial statements and its accountant has supplied you with the following forecasts to enable you to assess whether the company will be a going concern. The forecasts have been prepared on a monthly basis for the year to 31 March 20X8, and are:
(1) Capital expenditure/disposal forecast
(2) Profit forecast
(3) Cash flow forecast
The capital expenditure/disposal forecast and profit forecast have been used to prepare the cash flow forecast.
Required
(a) Briefly describe what you understand by the term 'going concern' and state the minimum period you would expect the company to continue in business for it to be considered a going concern.
(b) Describe the factors which may indicate that a company is not a going concern.
(c) Describe the work you would perform to verify that the value of items in the following forecasts, prepared by the company's accountant, are reasonable:
(i) Capital expenditure/disposal forecast
(ii) Profit forecast
(iii) Cash flow forecast
(d) Briefly describe the further work, in addition to that described in (b) and (c) above, you would perform to enable you to determine whether the company is a going concern.