In: Accounting
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.
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 |