The Auditor’s Responsibility with Going Concerns Read “The auditor’s consideration of an entity’s ability to continue...

The Auditor’s Responsibility with Going Concerns

Read “The auditor’s consideration of an entity’s ability to continue as a going concern.”

Based on the reading, analyze the auditor’s responsibility to determine whether a company can continue as a going concern. From your analysis, propose at least two (2) key factors auditors need to consider when determining an entity’s ability to continue as a going concern. Provide your rationale.

Expert Solution

The auditor has a responsibility to evaluate whether there is substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time,

not to exceed one year beyond the date of the financial statements being audited (hereinafter referred to as a reasonable period of time).

The auditor's evaluation is based on his or her knowledge of relevant conditions and events that exist at or have occurred prior

to the date of the auditor's report. Information about such conditions or events is obtained from the application of auditing procedures planned and

performed to achieve audit objectives that are related to management's assertions embodied in the financial statements being audited, as described in AS 1105, Audit Evidence.

The auditor considers (among other issues) the following items in deciding if there is a substantial doubt about an entity’s ability to continue as a going concern:

Negative trends in operating results, such as a series of losses

Loan defaults by the company

Denial of trade credit to the company by its suppliers

Uneconomical long-term commitments to which the company is subjected

Legal proceedings against the company

ekkarill92 answered 2 years ago

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