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Audit Case Going Concern

In: Business and Management

Submitted By Twocatsboy
Words 1073
Pages 5
1a) I believe that on a scale from 0-100 the cut off should be about 75 to be considered substantial doubt. I chose 75 because it should definitely be at least 50, there should be more of a doubt than not that the company will not continue. Along that reasoning to me substantial means it should be more than the borderline, 50, of continuing and not continuing so 75 seems like it is at a point where the auditor substantially believe that’s more likely than not the client they are auditing with cease to operate within the year and there won’t be any sort of doubt which could greatly hurt a company. Some information the auditor needs to determine this likelihood is the ability to pay back debt as it becomes due without having to sell assets outside of the course of business (a retailer selling their goods wouldn’t count), a debt restructure to meet obligations, or having to revise business operations.
1b) Upon determining that there is substantial doubt about going concern the auditor should obtain information from the management that contains plans intended to mitigate this assertion then assess those the likelihood that those plans can be effective and actually work. After this he should consider the adequacy of disclosure about the going concern and include an explanatory paragraph to reflect the decision.
1c) Specific areas that the auditor should focus on regarding managements plans are plans to dispose of assets, borrow money or restructure debt, reduce or delay expenditures, increase ownership equity.
1d) If the auditor determines that there is substantial doubt about the entities ability to continue as a company the auditor should give an unqualified opinion with an explanatory paragraph disclosing this information.
1e) If the auditor determines that there is not substantial doubt he needs to consider the need for disclosure and possibly just give a standard

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