Allmark, the Client, Is a Small Manufacturing Company Currently in Need

question 63

Multiple Choice

Allmark, the client, is a small manufacturing company currently in need of cash in order to stay in business. Loan payments exceeding its cash on hand are due in 60 days and if Allmark defaults, its bank says it will foreclose on the assets used as collateral. Allmark's only recourse then would be to file bankruptcy. One solution is to seek outside financing from vendors eager to keep Allmark in business, although the availability of financing will not be known until the next fiscal year. The auditor should:

• A) audit the financial statements and disclose the possibility that Allmark may not be able to continue as a going concern.
• B) withhold the audit report until financing has been secured.
• C) disclaim an opinion on the financial statements.
• D) ignore the issue as it does not affect the current year under audit.

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Definitions:

Total Manufacturing Costs

The sum of all expenses directly associated with the production of goods, including direct labor, direct materials, and manufacturing overhead.

Predetermined Overhead Rate

Predetermined Overhead Rate is a rate calculated before a period begins, used to allocate estimated overhead costs to products or job orders based on a selected activity base.

Annual Overhead Costs

Refers to the total expenses that are not directly tied to a specific product or service but are required for the business to operate, accumulated over a year.

Direct Labor Costs

The wages paid to workers who are directly involved in the production of goods or the provision of services.