Reference no: EM132918505

You are the manager responsible for performing hot reviews on audit files where there is a potential disagreement between your firm and the client regarding a material issue. You are reviewing the going concern section of the audit file of BHS Company, a client with considerable cash flow difficulties, and other, less significant operational indicators of going concern problems. The working papers indicate that BHS Company is currently trying to raise finance to fund operating cash flows, and state that if the finance is not received, there is a significant doubt over the going concern status of the company. The working papers conclude that the going concern assumption is appropriate, but it is recommended that the financial statements should contain a note explaining the cash flow problems faced by the company, along with a description of the finance being sought, and an evaluation of the going concern status of the company. The directors do not wish to include the note in the financial statements.

Required

Problem 1: Explain the term "Going Concern" and how its applicability and non-applicability affect the way we prepare, and present the financial statements

Problem 2: Consider and comment on the possible reasons why the directors of BHS Company are reluctant to provide the note to the financial statements.

Problem 3: Identify and discuss the implications for the auditor's report if:

(i) The directors refuse to include the disclosure note
(ii) The directors agree to include the disclosure note