Going Concern, Uniform Guidance for Single Audit

Question 1

going concern addresses an entity’s ability to…

Answer 1

continue for a reasonable period usually 1 year

Question 2

if disclosures are not adequate, what type of opinion should auditors issue?

Answer 2

qualified or adverse opinion

Question 3

if disclosures are adequate and doubt is alleviated by managements plans, auditor will issue what type of report?

Answer 3

unmodified opinion; consider emphasis of matter paragraph

Question 4

if disclosures are adequate and doubt is not alleviated by managements plans, auditor will issue what type of report?

Answer 4

Unmodified opinion with going concern section:
“substantial doubt about the entity’s ability to continue as a going concern”

Question 5

if the current ratio (CA/CL) is lower than 1, it may create a…

Answer 5

substantial going concern doubt because it indicates the entity may be unable to pay debts as they come due.

Question 6

what are some conditions of going concern?

Answer 6

-unable to pay debts as they come due
-several years of operating losses and/or negative working capital
-uneconomic long-term commitments
-restructuring debts
-dividends in arrears (havent paid out dividends)
-loss of key customers

Question 7

what are the procedures to test going concern assumption?

Answer 7

-read loan agreements
-read minutes of shareholder meetings
-inquire of entity’s attorney about litigation
-confirm lines of credit
-review reports of regulatory action

Question 8

what are some managements plans to mitigate going concern issues?

Answer 8

-dispose of business unit or major asset
-cut or delay expenditures
-borrow more or restructure existing debt
-increase ownership equity (sell stock)

Question 9

going concern primary issue for auditors relates to

Answer 9

cash flow

Question 10

going concern needs what 2 things?

Answer 10

1. adequate disclosure
2. substantial doubt

Question 11

if going concern basis is not appropriate, issue what type of opinion?

Answer 11

adverse

Question 12

profitability ratios

Answer 12

gross margin and return on assets

Question 13

asset utilization ratios

Answer 13

inventory turnover, receivable turnover

Question 14

market ratios

Answer 14

price to earnings, sales to cash flow

Question 15

liquidity ratios

Answer 15

current ratio, quick ratio (acid test)

Question 16

debt utilization ratios

Answer 16

debt to total assets ratio, debt to equity ratio

Question 17

single audit act

Answer 17

materiality is determined separately for each major federal financial assistance program

Question 18

audits of recipients of federal financial assistance include reports on…

Answer 18

the F/S
AND
a separate or combined report on I/C and on compliance with laws and regulations

Question 19

free rents received as part of an award to carry out a federal program…

Answer 19

are considered federal funds expended

Question 20

organizational impairment of independence

Answer 20

when you work for the government and are impaired

Question 21

external impairment of independence

Answer 21

an external threat to independence

Question 22

personal impairment of independence

Answer 22

affects the person in the position

Question 23

pass through entity

Answer 23

a nonfederal entity that provides a federal award to another entity to carry out a federal program

Question 24

Uniform guidance defines sub-recipient as…

Answer 24

a nonfederal entity that expends federal awards received from another entity to carry out a federal program