What is the issue with going concern? How do auditors discover there is a going concern...

What is the issue with going concern? How do auditors discover there is a going concern for a client? What should an auditor do if the auditor feels there is a going concern issue? Please describe the implications on the auditor's report of a client's going concern issue.

Expert Solution

The issue with the going concern is that if the company is not a going concern the the accounts shall be prepared as if the company will be dissolved right now and what are the real values which can be derived for assets and liabilites.

The auditors can find wether the company is a going concern or not by verifying the companies past financials,its future obligations or any scenario which will make company not a going concern.

For example the net worth of the company is negative and its not likely to improve then the company ceases to be going concern.

If there is a litigtion going on the company and its likely that the company will loose the case and it will ease to operate then it will be not a going concern.

If post audit period if there are subsequent event for example a major debtors becomes doubtful and companies operation will be affected significantly then this may effect the going concern criteria.

The impliation on audit report is that the clause of going concern will be modified and the audit report will have a not that the company ceases to be a going concern and books are prepared not on going concern basis.

ekkarill92 answered 1 year ago

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