Going Concern in Audit

Which of the following best defines the “going concern” basis of accounting?

• A company’s ability to generate profits

• The assumption that a company will continue to operate for the foreseeable future

• The assessment of an entity’s ethics and governance

• The evaluation of an entity’s risk management practices

What are the primary responsibilities of auditors in relation to the going concern basis of accounting?

• Determining the entity’s profitability

• Assessing the entity’s liquidity position

• Evaluating the entity’s ability to continue operating

• Verifying the entity’s compliance with tax regulations

How does management assess the entity’s ability to continue as a going concern?

• By analyzing past financial performance

• By considering the uncertainty associated with future events or conditions

• By obtaining additional capital from lenders

• By liquidating the entity’s assets

What additional audit procedures should auditors perform if events or conditions are identified that may cast significant doubt on the entity’s ability to continue as a going concern?

• Analyzing and discussing cash flow forecasts with management

• Reading the terms of debentures and loan agreements

• Evaluating management’s plans for future actions

• All of the above

What are the implications for an auditor’s report if management’s use of the going concern basis of accounting is inappropriate?

• Adverse opinion

• Qualified opinion

• Unmodified opinion

• Disclaimer of opinion

What should the auditor do if there is a material uncertainty related to the entity’s ability to continue as a going concern?

• Request management to extend the assessment period

• Express an unmodified opinion with appropriate disclosure

• Express an adverse opinion

• Perform additional audit procedures to obtain more evidence

What should the auditor do if there is a significant delay in the approval of financial statements?

• Proceed with the audit without considering the delay

• Inquire about the reasons for the delay and perform additional audit procedures

• Express a qualified opinion due to the delay

• Report the delay to regulatory authorities

How should the auditor evaluate whether financial statement disclosures address going concern matters?

• By comparing the entity’s financial performance with industry benchmarks

• By assessing the overall presentation, structure, and content of the financial statements

• By reviewing management’s evaluation of the significance of events or conditions

• By analysing the entity’s cash flow and profit forecasts

What is the auditor’s responsibility if there is a material uncertainty related to going concern but the financial statements do not include adequate disclosure?

• Express a qualified opinion on the financial statements

• Express an unmodified opinion with a separate section on “Material Uncertainty Related to Going Concern”

• Express an adverse opinion on the financial statements

• Request management to extend their assessment period

How should the auditor communicate with those charged with governance regarding events or conditions that may cast significant doubt on going concern?

• Communicate only if management’s use of going concern is inappropriate

• Communicate if events or conditions identified constitute a material uncertainty

• Communicate after expressing an adverse opinion on the financial statements

• Communicate at the discretion of the auditor