Going Concern Issues

Question 0

Audit procedures that identifies whether there is a substantial doubt

Answer 0

Analytical procedure

Review of subsequent events

Review of loan agreements

Read the Minute meetings

Lawyers letter

Confirming with third parties the details of arrangements to maintain financial support.

Question 1

Reasonable period of time

Answer 1

A period of time not to be exceed one year beyond the date of the financial statements of being audited

Question 2

Indicators of substantial doubt

Answer 2

Negative cash flows from operating activities, adverse key financial ratios, working capital deficiencies, recurring capital losses

Negative trends

Other indicators (debt, disposal of assets, restructuring debt, working capital deficiencies)

Internal matters- labor problems, harmful commitments, dependence on single projects or customers

External matters- lawsuits catastrophic losses, harmful legislation, downturn of economy, loss of customer/suppliers

Question 3

When should the auditor obtain written representations?

Answer 3

Management plans to mitigate adverse effects

Management belief that financial statements disclose all relevant matters about going concern issue

Question 4

Reporting responsibilities when auditor continues to have substantial doubt

Answer 4

Evaluate the adequacy of disclosure

Add an emphasis of matter to draw readers attention about going concern issues

Disclaim an opinion if sufficient evidence cannot evaluate adequacy of financial. Disclaimed opinions should not include an emphasis of matter paragraph

There should be no conditional language in depressing a conclusion when expressing the existence of a substantial doubt

Question 5

Mitigating factor considerations

Answer 5

• plans to dispose of assets
• plans to borrow money or restructure debt
• plans to reduce or delay expenditures
• plans to increase ownership equity

Question 6

How would management deal with a negative trend in subsequent events?

Answer 6

Increase ownership equity/ this would bring assets to company and continue in operation

Question 7

When an auditor has substantial doubt about an entity’s ability to continue as a going concern, the auditor primary focus will be on the financial stamens effects and report by considering the adequacy of disclosure

Answer 7

True