Manitoba Metal Fabricators (MMF) is a company that makes steel components for the construction industry. It specializes in extreme precision manufacturing where tolerances are measured in distances of less than one millimetre. Its products are used in revolving restaurants, automatic doors, and similar construction companies, particularly in the Middle East. Construction has slowed down in the Middle East, and the extremely expensive buildings requiring high-precision steel components are becoming less popular. In addition, some of the technology used by MMF has been copied by companies in southeast Asia, resulting in extreme price competition in this sector of the construction industry for the first time. MMF is highly leveraged. Two years ago, the company borrowed a large sum of money to fund the purchase of new premises and the latest laser cutting equipment. The loan is due for renewal three months after year end. One week before the audit report is to be signed, the bank has still not agreed to renew the loan and MMF’s management has begun negotiations with another bank.
1) Identify three factors that would raise questions about the going concern assumption for MMF. Are there any mitigating factors?
2) What type of reporting options are available to the auditor of MMF?
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