Reference no: EM132999106

We have just accepted a new audit client, Pathobio Inc. (PI), and we will be performing the audit for the upcoming September 30, 2021 year end. Incorporated in 2015, PI is a biotechnology company focused on developing effective anticancer drugs through clinical trials. Despite the personal wealth of the company's owner, Lucas Wagner, PI approached a bank for financing in October 2020 because the company is expected to operate at a loss in fiscal 2021 and Lucas does not want to invest additional funds in the company. The bank has requested audited financial statements for the year ended September 30, 2021 to receive financing in fiscal 2022. The bank requires that the financial statements be prepared in accordance with ASPE. Lucas has agreed to provide a personal guarantee for the financing. It has always been Lucas's intention to keep PI as a family owned business.

• In the past, PI has always had a review performed by a local sole practitioner, Adam Schoen. We need to contact Adam and set up a time to review the prior year working papers. However, when looking at last year's financial statements, we noticed that there was neither cash flow statement nor going concern disclosure. When a biotechnology company has not earned substantial revenue from its drugs, there is typically significant doubt as to whether it can continue as a going concern.

Problem 1: Write a review of the company's financial accounting policies in the memo that identifies and discusses the operating risks facing this particular company. You need to make sure they are in accordance with GAAP. Please address preliminary audit planning issues for the September 30, 2021 engagement and discuss the audit procedures for any issues that you identify.