Lupin & Co. is the auditor for Diamond Berhad, a large interior design company. During the audit for the year ended 30 June 2021, the managing director informed auditor that the company has recently lost a major government contract and contracts from developer. Diamond’s current ratio has fallen from 1 to 0.40 for the first time due to this matter. Diamond has paid a number of its interior supplier later than usual and some of them have withdrawn credit terms. In addition, one of Diamond’s suppliers is threatening legal action to recover the sums owing. The Diamond’s projections include fifty percent cash inflows from this contract.The company has been experiencing some cash flow difficulties in previous and current year. Management has extended their bank credit facility to pay day-today expenses. Additionally, Diamond has a loan of RM5 million which is due for repayment in full by September 2021. The audit partner is concerned that the company may be facing going concern problem, but the managing director believes that the company intends to cut back future capital expenditure to alleviate the going concern issue.
a. Evaluate the indicators of going concern problems facing by Diamond Berhad and briefly explain the audit procedures that should be carried on by the auditor in assessing whether or not the entity’s is going concern.