Reference no: EM132719868

Question - You are the audit partner reviewing the audit working papers for Good Care Hospital Limited (GCHL) for the year ended 30 June 2020.

Today is 20 July 2020 and the audit report being due to be signed in three weeks' time.

During your review you note that the fixed-term borrowings of GCHL totalling $45 million are approaching maturity. GCHL does not seem to have renegotiated any terms of refinancing. You are aware, from your experience with other clients, that banks are reluctant to extend financing on the same terms in the current market. The financing of GCHL was historically managed by the Chief Financial Officer who left the hospital seven months ago and has not been replaced.

GCHL's treasurer, who has been with the hospital for eight months, has advised you that he has been busy renegotiating with some of GCHL's key suppliers who recently requested cash on delivery for all orders, rather than extending the normal credit terms.

You are also aware that a fire that occurred in the Hospital cafeteria last week on 14 July was not adequately covered by insurance. Fortunately, no one was seriously injured in the fire, but the cafeteria was so badly damaged it had to be closed. While discussing this matter with GCHL's law firm, they reveal that the hospital is unlikely to have adequate professional indemnity insurance to meet the current demands of several malpractice cases that have been brought against the hospital in the last 12 months.

Required -

(a) List FOUR going concern issues for GCHL.

(b) What are the TWO mitigating factors? Explain.

(c) Explain your responsibilities with respect to the cafeteria fire.

(d) Assuming that cafeteria fire event is a material event, how this event be handled in the financial report and the audit report?