Ch. 8 - Going Concern

Question 1

Going Concern - CAS _ _ _

Answer 1

570

Question 2

Going Concern Means…

Answer 2

the company is expected to continue operating for the foreseeable future

Question 3

Going Concern Indicators - Financial

Answer 3

1. working capital ratio below 1
2. long-term debt maturing that cannot be repaid
3. reliance on short-term financing
4. negative operating cash flows
5. negative retained earnings

Question 4

Going Concern Indicators - Operating

Answer 4

1. Plans to liquidate or cease operations
2. Departure of key management
3. loss of market share
4. loss of key customers
5. inability to maintain suppliers

Question 5

Going Concern Indicators - Others

Answer 5

1. Non-compliance with laws
2. Material lawsuits
3. changes in
   regulations

Question 6

Auditor’s Responsibility…

Answer 6

assess if management has done an appropriate job of supporting the going-concern assumption

Question 7

Auditor’s Objectives are:

Answer 7

1. obtain sufficient appropriate evidence regarding mgmts use of the assumption
2. conclude based on evidence obtained
3. report in accordance with CAS

Question 8

Audit Procedures Related to the Going Concern Assumption

Answer 8

1. request and review the going-concern assessment
2. evaluate the cash flow forecast
3. request written representation regarding mgmts plan for action
4. Analyze interim FS
5. review board minutes relating to the financial issues

Question 9

The three conclusions to come to:

Answer 9

1. the assumption is appropriate
2. the assumption is appropriate but a material uncertainty exists
3. the assumption is not appropriate

Question 10

Conclusion: the assumption is appropriate

Answer 10

no modification is necessary to the FS

Question 11

Conclusion: the assumption is appropriate but a material uncertainty exists

Answer 11

1. Adequate disclosure: issue an unqualified report and Emphasis of Matter paragraph relating to uncertainty
2. Inadequate Disclosure: issue a qualified or adverse report

Question 12

Conclusion: the assumption is not appopriate

Answer 12

1. If adequate disclose and appropriate presentation, issue a qualified report with Emphasis of Matter paragraph
2. If inadequate disclosure and presentation, issue an adverse opinion