ExpertMedium2 marksMultiple Choice
ACCA · Question 06 · Review and Reporting
SECTION A - CASE 2: AERODYNAMICS LOGISTICS
AeroDynamics Logistics is a drone delivery startup. You are the audit senior for the year ended 30 September 20X6. During the audit, you note the following:
- The company has a significant cash burn rate and its main operating license expires in two months, with renewal pending a safety review.
- On 15 October 20X6, a major warehouse fire destroyed 40% of their drone fleet.
- A key customer, accounting for 25% of revenue, declared bankruptcy on 5 November 20X6.
The financial statements are due to be signed on 30 November 20X6.
Which TWO of the following are operating indicators that AeroDynamics Logistics may not be a going concern? (Select TWO)
SECTION A - CASE 2: AERODYNAMICS LOGISTICS
AeroDynamics Logistics is a drone delivery startup. You are the audit senior for the year ended 30 September 20X6. During the audit, you note the following:
- The company has a significant cash burn rate and its main operating license expires in two months, with renewal pending a safety review.
- On 15 October 20X6, a major warehouse fire destroyed 40% of their drone fleet.
- A key customer, accounting for 25% of revenue, declared bankruptcy on 5 November 20X6.
The financial statements are due to be signed on 30 November 20X6.
Which TWO of the following are operating indicators that AeroDynamics Logistics may not be a going concern? (Select TWO)
Answer options:
A.
The significant cash burn rate.
B.
The expiration of the main operating license in two months.
C.
The loss of a key customer accounting for 25% of revenue.
D.
The warehouse fire destroying 40% of the fleet.
How to approach this question
Differentiate between financial indicators (cash flow, ratios) and operating indicators (loss of licenses, key staff, or major customers) of going concern problems.
Full Answer
ISA 570 Going Concern categorizes indicators into Financial, Operating, and Other. Operating indicators include the loss of key management, loss of a major market, key customer, franchise, or license. Cash burn is a financial indicator.
Common mistakes
Selecting cash burn rate, failing to distinguish between financial and operating indicators.
Practice the full ACCA AA — Audit and Assurance Practice Exam 2
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