Ch. 8 Going Concern

Question 1

Technical competencies

• assesses the entity’s risk assessment process
• assesses the risks of the project, or, for audit engagements, assesses the risk of material misstatement at the financial statement level and at the assertion level for classes of transactions, account balances, and disclosures

Answer 1

Technical competencies

• assesses the entity’s risk assessment process
• assesses the risks of the project, or, for audit engagements, assesses the risk of material misstatement at the financial statement level and at the assertion level for classes of transactions, account balances, and disclosures

Question 2

What is the going-concern assumption?

Answer 2

An entity is viewed as continuing in business for the foreseeable future. Financial statements are prepared on a going-concern basis unless management intends to cease operations or has no other alternative to do so.

Question 3

What is the management responsibility?

Answer 3

Under IAS 1 and ASPE Section 1400, they need to be able to assess whether an entity is a going concern, and then use judgement to determine future events. If there is an indication that an entity is no longer a going concern, management needs to increase documentation related to its assertion.

Question 4

What does CAS 570 state

Answer 4

CAS 570 States that the auditor’s objectives are:

• to obtain SAAE regarding the appropriateness of management’s uses of the going concern assumptions
• Whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern
• t report in accordance with this CAS

Question 5

What should an auditor do if they have doubts about management’s going-concern assumption?

Answer 5

Auditor should request that management provide its going-concern assessment. If there is an error, an auditor may ask for a revision. Once revised, the auditor must assess it for reasonableness through discussions with management and review supporting documents. Although this is not the auditors job, it can have a significant impact on the audit

Question 6

What are some audit procedures outlined in CAS 570 when events or conditions are identified that may interfere with the entity’s going concern assumption?

Answer 6

• request that management perform an assessment
• evaluate management’s plan of action in relation to the assessment
• where a cash flow forecast has been prepared, evaluate the reliability of the data
• consider whether any additional facts or information has come to light since the data management’s assessment that may influence the conclusion
• request written representation from management regarding its plan for action.

Question 7

What are the conclusions an auditor must make based on the evidence obtained?

Answer 7

• the going-concern assumption is appropriate
• the going-concern assumption is not appropriate
• the going concern assumption is appropriate but a material uncertainty exists.