Ch. 8 - Going Concern Flashcards
1
Q
Going Concern - CAS _ _ _
A
570
2
Q
Going Concern Means…
A
the company is expected to continue operating for the foreseeable future
3
Q
Going Concern Indicators - Financial
A
- working capital ratio below 1
- long-term debt maturing that cannot be repaid
- reliance on short-term financing
- negative operating cash flows
- negative retained earnings
4
Q
Going Concern Indicators - Operating
A
- Plans to liquidate or cease operations
- Departure of key management
- loss of market share
- loss of key customers
- inability to maintain suppliers
5
Q
Going Concern Indicators - Others
A
- Non-compliance with laws
- Material lawsuits
- changes in
regulations
6
Q
Auditor’s Responsibility…
A
assess if management has done an appropriate job of supporting the going-concern assumption
7
Q
Auditor’s Objectives are:
A
- obtain sufficient appropriate evidence regarding mgmts use of the assumption
- conclude based on evidence obtained
- report in accordance with CAS
8
Q
Audit Procedures Related to the Going Concern Assumption
A
- request and review the going-concern assessment
- evaluate the cash flow forecast
- request written representation regarding mgmts plan for action
- Analyze interim FS
- review board minutes relating to the financial issues
9
Q
The three conclusions to come to:
A
- the assumption is appropriate
- the assumption is appropriate but a material uncertainty exists
- the assumption is not appropriate
10
Q
Conclusion: the assumption is appropriate
A
no modification is necessary to the FS
11
Q
Conclusion: the assumption is appropriate but a material uncertainty exists
A
- Adequate disclosure: issue an unqualified report and Emphasis of Matter paragraph relating to uncertainty
- Inadequate Disclosure: issue a qualified or adverse report
12
Q
Conclusion: the assumption is not appopriate
A
- If adequate disclose and appropriate presentation, issue a qualified report with Emphasis of Matter paragraph
- If inadequate disclosure and presentation, issue an adverse opinion
