When a question arises about an entity's continued existence, the auditor should consider factors tending to mitigate the significance of negative information concerning the entity's means for maintaining adequate cash flow. An example of such a factor is the:
A)possibility of purchasing certain assets rather than leasing them.
B)capability of extending the due dates of existing debt.
C)appropriateness of changing depreciation methods from double declining balance to straight line.
D)marketability of property and equipment that management plans to keep.

Question

Quizplus · Accepted Answer

The capability of extending the due dates of existing debt can mitigate the significance of negative information regarding the entity's means for maintaining adequate cash flow because it provides the entity with additional time to generate sufficient cash flow to pay off the debt. Options A, C, and D may have an impact on the entity's financial statements but do not directly address the issue of maintaining adequate cash flow.

When a Question Arises About an Entity's Continued Existence, the Auditor