Week 8 Auditing II
Chapter 7
Case – 7-54
"Going Concern" Please respond to the following:
From the e-Activity, analyze the auditor’s responsibility to determine if a company can continue as a going concern. From your analysis, propose at least two (2) key factors that the auditor should consider when determining an entity’s ability to continue as a going concern. Provide a rationale to support your proposal.
SAS 59, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern (AICPA, Professional Standards, vol. 1, AU section 341) - The auditor is now required to document the conditions that substantiated the substantial doubt that the entity would continue to exist, elements of management’s plans that appear to be particularly important in overcoming the adverse results produced by the conditions that led to the substantial doubt, and the audit procedures performed and evidence gathered to evaluate these elements. The auditor is also required to document conclusions whether substantial doubt about the entity’s continuance still exists or is alleviated after the investigation of management’s plans.
The auditor should also document the possible effects of the conditions or events on the financial statements and whether disclosure of the conditions and events that caused the substantial doubt is needed in the financial statements (including the footnotes) and the audit report. If client disclosures appear inadequate, the auditor should document conclusions whether a qualified or adverse audit opinion should be expressed.
Regular auditing procedures that may identify conditions and events that indicate a going concern problem include the following:
1. Analytical procedures – Analytical procedures used as a substantive test or used in the planning and overall review stages of the audit may indicate: (a) negative trends; (b) slow-moving inventory; (c) Receivable collectability problems; (d) liquidity and solvency problems.
2. Review of subsequent events –
Case – 7-54
"Going Concern" Please respond to the following:
From the e-Activity, analyze the auditor’s responsibility to determine if a company can continue as a going concern. From your analysis, propose at least two (2) key factors that the auditor should consider when determining an entity’s ability to continue as a going concern. Provide a rationale to support your proposal.
SAS 59, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern (AICPA, Professional Standards, vol. 1, AU section 341) - The auditor is now required to document the conditions that substantiated the substantial doubt that the entity would continue to exist, elements of management’s plans that appear to be particularly important in overcoming the adverse results produced by the conditions that led to the substantial doubt, and the audit procedures performed and evidence gathered to evaluate these elements. The auditor is also required to document conclusions whether substantial doubt about the entity’s continuance still exists or is alleviated after the investigation of management’s plans.
The auditor should also document the possible effects of the conditions or events on the financial statements and whether disclosure of the conditions and events that caused the substantial doubt is needed in the financial statements (including the footnotes) and the audit report. If client disclosures appear inadequate, the auditor should document conclusions whether a qualified or adverse audit opinion should be expressed.
Regular auditing procedures that may identify conditions and events that indicate a going concern problem include the following:
1. Analytical procedures – Analytical procedures used as a substantive test or used in the planning and overall review stages of the audit may indicate: (a) negative trends; (b) slow-moving inventory; (c) Receivable collectability problems; (d) liquidity and solvency problems.
2. Review of subsequent events –