Question 1

If auditors determine there is substantial doubt about the entity continuing as a going concern, _______.
A)the next step is to obtain information about management's plans to mitigate or minimize the adverse effects of the situation
B)the next step is to obtain information about the auditor's plans to mitigate or minimize the adverse effects of the situation
C)they should immediately issue an adverse opinion and withdraw from the engagement
D)the auditors should immediately invoice the client for the cost of the audit and request payment within 30 days

Accepted Answer

If auditors determine there is substantial doubt about the entity continuing as a going concern, the next step is to obtain information about management's plans to mitigate or minimize the adverse effects of the situation. The auditors should then evaluate the effectiveness of those plans and consider the implications for the financial statements. The auditors may also need to modify the audit report if the going concern issue is not adequately addressed. Issuing an adverse opinion and withdrawing from the engagement should be a last resort and only done if the going concern issue is so severe that there is no reasonable alternative. Invoicing the client and requesting payment is not a relevant step in this situation.

Question 2

Who considers whether work has been performed in accordance with appropriate audit standards?
A)Working paper reviewer
B)Engagement partner
C)Quality control reviewer
D)Audit partner

Accepted Answer

The answer of Who considers whether work has been performed...

Question 3

What is the going concern assumption?
A)The viability of an entity to remain in business for the foreseeable future
B)The period of time required by the applicable financial reporting framework
C)The responsibility to perform any audit procedures
D)An overall conclusion on the audit drawn by auditors

Accepted Answer

The going concern assumption is the assumption that an entity will remain in business for the foreseeable future. This means that the financial statements are prepared under the assumption that the entity will continue to operate and not be liquidated or sold. This assumption is important in determining the values of assets and liabilities on the balance sheet, as well as the expected cash flows and profitability of the entity in the future.

Question 4

With respect to the going concern assumption, auditors also draw their own conclusions _______.
A)about whether there is substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time
B)about whether there is substantial doubt about the entity's ability to continue as a going concern for an indefinite period of time
C)as to whether the client is likely to be a target for an acquisition by another company in the near future
D)as to whether the client is likely to attempt to acquire another company in the near future

Accepted Answer

Auditors are responsible for evaluating the entity's ability to continue as a going concern for a reasonable period of time, typically 12 months following the balance sheet date. They do not make predictions about whether the client is likely to be acquired or acquire another company.

Question 5

_______ are used near the end of the audit to assist the auditor in forming an overall conclusion about whether the financial statements are consistent with the auditor's understanding of the entity.
A)Analytical procedures
B)Engagement procedures
C)Quality control procedures
D)Audit standards

Accepted Answer

Analytical procedures are used in the final stages of an audit to assist the auditor in evaluating the financial statements as a whole and forming an overall conclusion about their accuracy and completeness. These procedures involve the evaluation of financial information through the analysis of relationships and trends, and are an important tool for ensuring that the financial statements are consistent with the auditor's expectations for the entity. Engagements procedures, quality control procedures, and audit standards are all important components of the audit process, but do not specifically relate to the use of analytical procedures in forming an overall conclusion.

Question 6

An example of a factor that mitigates doubts about an entity's ability to continue as a going concern would be _______.
A)a letter of guarantee from a parent company
B)the ability to raise additional funds through the issuance of more stock
C)the ability to sell an unprofitable segment of the business
D)All of these examples are mitigating factors.

Accepted Answer

All of the options listed could potentially mitigate doubts about an entity's ability to continue as a going concern. A letter of guarantee from a parent company provides assurance of financial support, raising additional funds through the issuance of more stock can improve liquidity, and selling an unprofitable segment of the business can reduce costs and improve profitability. Therefore, any combination of these factors could be considered a mitigating factor.

Question 7

According to Generally Accepted Accounting Principles (GAAP), to meet the "going-concern" standard an entity must be viewed as capable of staying in business for ____________ after the date of the financial statements.
A)a reasonable period of time
B)six months
C)nine months
D)two years

Accepted Answer

According to GAAP, an entity must be viewed as capable of staying in business for a reasonable period of time after the date of the financial statements to meet the going-concern standard. The exact definition of a reasonable period of time may vary depending on the circumstances and nature of the business, but it generally refers to a period of at least twelve months. Therefore, options B, C, and D are not the correct choices.

Question 8

The management representation letter _______.
A)can sometimes serve as a substitute for certain audit procedures that were not able to be performed
B)is a letter from management to the auditor acknowledging management's responsibility for the preparation of the financial statements
C)is a letter from the auditor to management acknowledging management's responsibility for the preparation of the financial statements
D)should only be sent to the client's legal counsel; not directly to the client

Accepted Answer

The management representation letter is a letter from management to the auditor affirming management's responsibility for the preparation of the financial statements. It does not serve as a substitute for any audit procedures and is not a letter from the auditor to management. Additionally, it is typically sent directly to the client and not just to their legal counsel.

Question 9

The final step for the auditor to perform with respect to doubts about an entity's ability to remain a going concern is to communicate_______.
A)all relevant findings to the internal audit function
B)all relevant findings to common stockholders
C)with those charged with governance
D)with all preferred stockholders

Accepted Answer

The final step for the auditor is to communicate all relevant findings and doubts about going concern to those charged with governance, which may include the board of directors or the audit committee. This communication is required by auditing standards and is important for management to address any issues that threaten the entity's ability to continue operating. The auditor is not required to communicate these findings to the internal audit function or preferred stockholders, and common stockholders may not be able to provide sufficient oversight or action to address the issue.

Question 10

The written representation from management _______.
A)supplements the inquiries made of management regarding subsequent events and the evidence gathered from audit procedures
B)supplements the inquiries made of the auditor regarding subsequent events and the evidence gathered from audit procedures
C)can be drafted by the auditor and signed by the internal audit function on behalf of management
D)transfers legal liability for any financial statement errors to the auditor

Accepted Answer

The written representation from management supplements the inquiries made of management regarding subsequent events and the evidence gathered from audit procedures, as it provides the auditor with management's written acknowledgement of their responsibility for the financial statements, and confirms any representations made during the audit. The other options are incorrect as they do not accurately describe the purpose or nature of the written representation.

Question 11

If auditors determine there is substantial doubt about the entity continuing as a going concern, _______.
A)then the auditor should immediately notify the Securities and Exchange Commission (SEC)
B)the next step is to obtain information about management's plans to mitigate or minimize the adverse effects of the situation
C)the next step is to obtain information about the auditor's plans to mitigate or minimize the adverse effects of the situation.
D)the next step is to ensure the client is immediately billed for all services performed, to ensure payment

Accepted Answer

If auditors determine there is substantial doubt about the entity continuing as a going concern, the next step is to obtain information about management's plans to mitigate or minimize the adverse effects of the situation. This is done to assess the entity's ability to continue operating as a going concern. The auditor will then evaluate and determine whether appropriate disclosures have been made in the financial statements. The other options (A, C, and D) are not the appropriate next steps in this situation.

Question 12

The assumption that relates to the entity continuing in business for the foreseeable future is called _______.
A)the entity assumption
B)the going concern assumption
C)the solvency assumption
D)the liquidity assumption

Accepted Answer

The assumption that relates to the entity continuing in business for the foreseeable future is called the going concern assumption. This assumption is important in accounting because it enables the use of historical cost accounting, which assumes that the business will continue to operate in the future and therefore, assets can be recorded at their original cost rather than at their current market value. This assumption allows for more accurate financial statements and helps users make better business decisions.

Question 13

With respect to the going concern assumption, under Generally Accepted Accounting Principles (GAAP), a reasonable period of time is _______.
A)considered to be 90 days
B)considered to be 180 days
C)one year from the date the client issues financial statements
D)two years from the date the client issues financial statements

Accepted Answer

Under GAAP, a reasonable period of time for the going concern assumption is one year from the date the client issues financial statements. This means that when preparing financial statements, it is generally assumed that the entity will continue to operate for at least one year after the date of the financial statements. If there is a significant doubt that the entity will be able to continue as a going concern beyond this period, appropriate disclosures must be made in the financial statements.

Question 14

Analytical procedures during risk assessment of a going concern _______.
A)May identify negative trends such as working capital deficiencies, adverse key financial ratios, and decreasing cash flow from operations
B)May identify positive trends such as working capital deficiencies, adverse key financial ratios, and decreasing cash flow from operations
C)May identify only external matters that have occurred such as loss of a key franchise, loss of a principal customer, or work stoppages due to natural disaster
D)May identify internal matters that have occurred such as legal proceedings

Accepted Answer

Analytical procedures during risk assessment of a going concern may identify negative trends such as working capital deficiencies, adverse key financial ratios, and decreasing cash flow from operations. Positive trends are not relevant in this context. The analytical procedures may identify both internal and external matters that have occurred which may affect the going concern assumption. Loss of a key franchise, loss of a principal customer, or work stoppages due to natural disasters are examples of external matters that may be identified, while legal proceedings are an example of internal matters. However, the question specifically asks about risk assessment related to going concern, so options C and D can be ruled out.

Question 15

After considering management's plans, if auditors determine there is substantial doubt about the entity's ability to continue as a going concern, _______.
A)the auditor should consider withdrawing from the engagement
B)the next steps are to consider the possible effects on the financial statements and on the auditor's report
C)the next steps are to consider the possible effects on the financial statements and on the internal auditor's report
D)the auditor should attempt to locate alternative lines of debt and equity capital for the client

Accepted Answer

If auditors determine there is substantial doubt about the entity's ability to continue as a going concern, the next steps are to consider the possible effects on the financial statements and on the auditor's report. The auditor should assess management's plans to mitigate this doubt and consider whether they are feasible and realistic. The auditor should also evaluate the adequacy of disclosures related to the entity's ability to continue as a going concern in the financial statements. Depending on the assessment, the auditor may need to modify the auditor's report to include an emphasis of matter paragraph that draws attention to the going concern issue. The auditor should not consider withdrawing from the engagement or attempt to locate alternative lines of debt and equity capital for the client as these are management's responsibilities.

Question 16

At the end of the audit, which of the following is NOT reevaluated by the auditors?
A)Misstatements found during the audit
B)Materiality decisions made during the audit
C)Inherent risk based on audit findings
D)Fraud risk based on audit findings

Accepted Answer

Misstatements found during the audit are reevaluated and corrected to ensure the accuracy of the financial statements. Materiality decisions, inherent risk, and fraud risk are all factors that may need to be reassessed at the end of the audit based on the findings during the audit process.

Question 17

The going concern assumption _______.
A)is not the responsibility of the auditor, and should be left to management to determine
B)is a fundamental principle in the preparation of the financial statements
C)is the legal responsibility of the auditor
D)relates to the comparability and verifiability of a firm's financial statements

Accepted Answer

The going concern assumption is a fundamental principle in the preparation of financial statements. It assumes that a company will continue to operate in the foreseeable future, allowing for the meaningful presentation of financial statements. It is the responsibility of management to assess the company's ability to continue as a going concern, but the auditor must also consider whether there is any uncertainty about the company's ability to continue operating.

Question 18

If the auditors decide to issue a modified auditor's report due to doubt about an entity's ability to continue as a going concern _______.
A)the report should always be adverse
B)the report should always be a disclaimer of opinion
C)the matter should be communicated with those charged with governance
D)the should be communicated to the client's legal counsel for disclosure to senior management

Accepted Answer

When the auditors have doubts about the entity's ability to continue as a going concern, they should communicate this matter with those charged with governance, such as the board of directors or audit committee. The auditors may also issue a modified auditor's report, but the nature of the modification will depend on the extent of their doubt and the impact on the financial statements. The report could be either a qualified opinion or an adverse opinion, depending on the severity of the situation. Alternatively, the auditors may issue a disclaimer of opinion if they are unable to obtain sufficient evidence or information to form an opinion. However, regardless of the type of report issued, it is important to communicate the matter with those charged with governance to ensure appropriate action is taken. The auditors are not required to communicate the matter with the client's legal counsel for disclosure to senior management as this is the responsibility of those charged with governance.

Question 19

Responsibility for evaluating the going concern assumption in accordance with the applicable financial reporting framework rests with _______.
A)the auditor
B)management
C)the internal audit function
D)the clients legal counsel

Accepted Answer

The responsibility for evaluating the going concern assumption rests with management, as they are responsible for the entity's operations and are in the best position to assess the entity's ability to continue as a going concern. However, the auditor also has a responsibility to evaluate the going concern assumption as part of their audit procedures. The internal audit function and the client's legal counsel are not typically involved in the evaluation of the going concern assumption.

Question 20

If management determines there is substantial doubt about continuing as a going concern, _______.
A)then management must make a note disclosure about the circumstances, including any plans management may have to mitigate the situation.
B)then management must make list an estimated loss contingency in the financial statements about the circumstances, including any plans management may have to mitigate the situation.
C)nothing should be disclosed in the notes to the financial statements until management is reasonably certain it will be an issue
D)then future debt issues will likely enjoy lower interest rates

Accepted Answer

According to accounting standards, if management determines there is substantial doubt about continuing as a going concern, they must make a note disclosure about the circumstances, including any plans management may have to mitigate the situation. This is to provide transparency to the users of the financial statements about the possible risk to the entity's ability to continue operating.

Quiz 14: Completing the Audit

If auditors determine there is substantial doubt about the entity continuing as a going concern, _______.

Who considers whether work has been performed in accordance with appropriate audit standards?

What is the going concern assumption?

With respect to the going concern assumption, auditors also draw their own conclusions _______.

_______ are used near the end of the audit to assist the auditor in forming an overall conclusion about whether the financial statements are consistent with the auditor's understanding of the entity.

An example of a factor that mitigates doubts about an entity's ability to continue as a going concern would be _______.

According to Generally Accepted Accounting Principles (GAAP) , to meet the "going-concern" standard an entity must be viewed as capable of staying in business for ____________ after the date of the financial statements.

The management representation letter _______.

The final step for the auditor to perform with respect to doubts about an entity's ability to remain a going concern is to communicate_______.

The written representation from management _______.

If auditors determine there is substantial doubt about the entity continuing as a going concern, _______.

The assumption that relates to the entity continuing in business for the foreseeable future is called _______.

With respect to the going concern assumption, under Generally Accepted Accounting Principles (GAAP) , a reasonable period of time is _______.

Analytical procedures during risk assessment of a going concern _______.

After considering management's plans, if auditors determine there is substantial doubt about the entity's ability to continue as a going concern, _______.

At the end of the audit, which of the following is NOT reevaluated by the auditors?

The going concern assumption _______.

If the auditors decide to issue a modified auditor's report due to doubt about an entity's ability to continue as a going concern _______.

Responsibility for evaluating the going concern assumption in accordance with the applicable financial reporting framework rests with _______.

If management determines there is substantial doubt about continuing as a going concern, _______.