Klein Corporation has reported a loss for the 6th year in a row. Klein also has a large bank loan due in the coming year, bringing its current ratio to .60. Further, due to recent economic slowdown, Klein had to increase its bad debt expense by 4% and also saw its largest client, Forest Prairie file for bankruptcy. Forest Prairie's purchases made up 18% of Klein's total sales in the past year. Forest Prairie also had an unpaid balance to Klein at year end.
To reduce expenses Klein has reduced employee training from 5 days to 1 day. During the year, an employee was seriously injured in the production process when his arm was caught in a press. The employee has filed a lawsuit against Klein for $1 000 000 and claims that he was not properly trained to use the equipment. The legal proceeding for this case should begin in the next fiscal year. Since Klein has never been involved in such a lawsuit before, the legal counsel indicated that they were not able to estimate the amount and likelihood that Klein would have to pay.
Required:
Evaluate the going concern situation at Klein and indicate what the auditor would be required to do under CAS 570.

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The Answer of Klein Corporation has reported a loss for the 6th year in a row. Klein also has a large bank loan due in the coming year, bringing its current ratio to .60. Further, due to recent economic slowdown, Klein had to increase its bad debt expense by 4% and also saw its largest client, Forest Prairie file for bankruptcy. Forest Prairie's purchases made up 18% of Klein's total sales in the past year. Forest Prairie also had an unpaid balance to Klein at year end.
To reduce expenses Klein has reduced employee training from 5 days to 1 day. During the year, an employee was seriously injured in the production process when his arm was caught in a press. The employee has filed a lawsuit against Klein for $1 000 000 and claims that he was not properly trained to use the equipment. The legal proceeding for this case should begin in the next fiscal year. Since Klein has never been involved in such a lawsuit before, the legal counsel indicated that they were not able to estimate the amount and likelihood that Klein would have to pay.
Required:
Evaluate the going concern situation at Klein and indicate what the auditor would be required to do under CAS 570.

Klein Corporation Has Reported a Loss for the 6th Year