Mark Jackson is the partner on the audit team for a new client, Central Companies (CC). The client hired Mark’s firm in August 2022, in preparation for the December 31, 2022, audit. Mark’s firm is replacing the predecessor firm that audited CC for the last 12 years. Since January 2022, CC has experienced a slowdown in sales as evidenced by lower s. Slower inventory turnover has negatively impacted operating cash flow, which has resulted in CC paying some of its suppliers late. Some of the smaller suppliers are demanding that CC pay cash on delivery of inventory items. Mark is also aware of correspondence between CC and its bank that indicates the company started having cash flow problems as far back as 2021. CC’s management is convinced that business will pick up and therefore has not laid off any employees or made any other strategic changes to try and improve cash flow.
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Discuss any significant events or conditions that Mark will consider when evaluating if there is substantial doubt about CC’s ability to continue as a going concern.