Reference no: EM132690839

You are the auditor for Moped Pty Ltd (Moped), a property development company. Moped has experienced rapid growth in recent years, leading to an increase in the levels of work in progress and receivables. Moped's current ratio has been deteriorating as the company has had significant delays across several projects, resulting in the company being unable to collect large portions of payments as specified in the respective project contracts. Moped was initially funded by a shareholder's loan that its founder provided. Further growth has been financed by a bank overdraft facility that is repayable on demand. At the end of the year, the amount overdrawn was $1.5m against an amount originally agreed with the bank of $1m. You are also aware that the bank may not be willing to renew the existing overdraft facility as Moped has exceeded the original agreed balance and lenders have become generally more cautious in extending unsecured finance in the current regulatory environment and credit crunch.

Question 1: Which of the following procedures are you LEAST likely to undertake in response to the above risk in relation to Moped?

a) Discuss with management the potential for Moped to restructure the company and divest of non-performing parts of the business.

b) Investigate the availability of technological advancements available in the market that may facilitate Moped's expedited completion of work in progress.

c) Investigate the bank's intentions in respect of the renewal of the current overdraft facility by contacting the bank directly.

d) Investigate the potential for Moped to pursue alternative financing arrangements, including additional contributions from its founder.

Question 2: Following your investigations, you have determined that Moped has exhausted all lines of credit and that the company will be unlikely to be able to meet its debts as they fall due within seven months. Moped's management disagrees with this view and has continued to use the going concern basis in preparing the company's 2018 financial report. Which of the following would be the most appropriate audit opinion for the Moped engagement?

a) Unmodified opinion with material uncertainty related to going concern section.

b) Disclaimer of opinion.

c) Adverse opinion.

d) Qualified opinion with emphasis of matter paragraph.