Reference no: EM133039702

Question - You are the audit manager that responsible for conducting reviews of audit files where there is a potential disagreement between your audit firm and the client regarding a significant issue. You are reviewing the going concern section of the audit file of Merpati Sdn Bhd (Merpati), a client who has significant cash flow difficulties and others less significant operational indicators of going concern problems. From the working papers, it indicate that Merpati is trying to raise funds for its operational cash flows. The chief executive officer further indicated that if funding is not received, there is a significant doubt as to whether the company continues to operate. The working papers conclude that the going concern assumption is appropriate; however, it is recommended that the financial statements contain a note explaining the cash flow difficulties encountered by the company, along with a description of the finance being obtained, and an evaluation of the going concern status of the company. The directors are not willing to include this note in the financial statements.

Required -

(a) Comment on possible reasons for Merpati Sdn Bhd directors' reluctance to provide the note to the financial statements.

(b) Discuss the implications in the auditor's report if:

(i) The directors refused to disclose the going concern problem as a note in the financial statements;

(ii) The directors agreed to disclose the going concern problem as a note in the financial statements.