Reference no: EM132572202

Question - Smithson Co provides scienti?c services to a wide range of clients. Typical assignments range from testing food for illegal additives to providing forensic analysis on items used to commit crimes to assist law enforcement of?cers.

The annual audit is nearly complete. As audit senior you have reported to the engagement partner that Smithson is having some ?nancial dif?culties. Income has fallen due to the adverse effect of two high-pro?le court cases, where Smithson's services to assist the prosecution were found to be in error. Not only did this provide adverse publicity for Smithson, but a number of clients withdrew their contracts. A senior employee then left Smithson, stating lack of investment in new analysis machines was increasing the risk of incorrect information being provided by the company.

A cash ?ow forecast prepared internally shows Smithson requiring signi?cant additional cash within the next 12 months to maintain even the current level of services. Smithson's auditors have been asked to provide a negative assurance report on this forecast.

A. State the audit procedures that may be carried out to try to determine whether or not Smithson Co is a going concern.

B. Explain the audit procedures the auditor may take where the auditor has decided that Smithson Co is unlikely to be a going concern.

C. In the context of the cash ?ow forecast, de?ne the term 'negative assurance' and explain how this differs from the assurance provided by an audit report on statutory ?nancial statements.