Which of the following conditions or events most likely would cause an auditor t

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Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern?

Stock dividends replace annual cash dividends.
Cash flows from operating activities are negative.
Research and development projects are postponed.
Significant related party transactions are pervasive.

When an auditor has substantial doubt about an entity's ability to continue as a going concern because of the probable discontinuance of operations, the auditor most likely will express a qualified opinion if

The effects of the adverse financial conditions will cause a bankruptcy filing.
Information about the entity's ability to continue as a going concern is not disclosed.
Management has no plans to reduce or delay future expenditures.
Negative trends and recurring operating losses appear to be irreversible.

In using the work of a specialist, an auditor may refer to the specialist in the auditor's report if, as a result of the specialist's findings, the auditor

Desires to disclose the specialist's findings, which imply that a more thorough audit was performed.
Is able to corroborate another specialist's earlier findings that were consistent with management's representations.
Discovers significant deficiencies in the design of the entity's internal control structure that management does not correct.
Becomes aware of conditions causing substantial doubt about the entity's ability to continue as a going concern.

Which of the following procedures would most likely assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?

Performing cutoff tests of sales transactions with customers with long-standing receivable balances
Evaluating the entity's procedures for identifying and recording related party transactions.
Inspecting title documents to verify whether any real property is pledged or collateral.
Inquiring of the entity's legal counsel about litigation, claims, and assessments.

Which of the following audit procedures would most likely assist an auditor in identifying conditions and events that may indicate there could be substantial doubt about an entity's ability to continue as a going concern?

Reconciliation of interest expense with debt outstanding.
Confirmation of accounts receivable from principal customers.
Review compliance with the terms of debt agreements.
Confirmation of bank balances

Which of the following conditions or events most likely would cause an auditor to have substantial doubts about an entity's ability to continue as a going concern?

Significant related party transactions are pervasive.
Usual trade credit from suppliers is denied.
Arrears in preferred stock dividends are paid.
Restrictions on the disposal of principal assets are present

A company has experienced several recent financial difficulties and the auditor has decided that substantial doubt exists that the company can remain a going concern for three years. The auditor must qualify the financial statements.

No, the report need not be a qualified report.
Yes, the report must be a qualified report.
An adverse opinion must be rendered.
None of the above

Emphasis of a Matter

An extra explanatory paragraph has been included in an otherwise unmodified audit opinion.   It might be labeled as an emphasis-of-a-matter or it might be labeled as an other-matter.   What is the difference?

There is no difference. Either label can be used to mean the same thing: inclusion of an explanatory paragraph without an effect on the audit opinion.
An emphasis-of-a-matter refers to something included in the financial statements. An other-matter refers to an issue that is not addressed in the financial statements.
An other-matter refers to something included in the financial statements. An emphasis-of-a-matter refers to an issue that is not addressed in the financial statements.
The emphasis-of-a-matter refers to the current year. An other-matter refers to a previous year.

An auditor would be most likely to add an emphasis of a matter paragraph to an otherwise unmodified audit report in which of the following circumstances?

Immaterial change in accounting estimate.
Change in accounting estimate.
Immaterial change in accounting principle.
Change in accounting estimate inseparable from a change in accounting principle.

Wilson & Friend CPAs issued an audit report on financial statements prepared by Apples and Oranges Unlimited. An extra paragraph was added at the end of the audit report. Which of the following is not a reason for this extra paragraph?

The CPA firm wanted to emphasize a matter.
The CPA firm found a reported balance in the statements that was materially misstated in accordance with US GAAP.
The CPA firm believes that there is substantial doubt that Apples and Oranges Unlimited can stay in business for another year.
The CPA firm found that the handling of depreciation was not consistent from one year to the next because of a change from one generally accepted method to another.

Explanation / Answer

Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern?

When an auditor has substantial doubt about an entity's ability to continue as a going concern because of the probable discontinuance of operations, the auditor most likely will express a qualified opinion if

In using the work of a specialist, an auditor may refer to the specialist in the auditor's report if, as a result of the specialist's findings, the auditor

Which of the following procedures would most likely assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?

Which of the following audit procedures would most likely assist an auditor in identifying conditions and events that may indicate there could be substantial doubt about an entity's ability to continue as a going concern?

Which of the following conditions or events most likely would cause an auditor to have substantial doubts about an entity's ability to continue as a going concern?

A company has experienced several recent financial difficulties and the auditor has decided that substantial doubt exists that the company can remain a going concern for three years. The auditor must qualify the financial statements.

Emphasis of a Matter

An extra explanatory paragraph has been included in an otherwise unmodified audit opinion.   It might be labeled as an emphasis-of-a-matter or it might be labeled as an other-matter.   What is the difference?

An auditor would be most likely to add an emphasis of a matter paragraph to an otherwise unmodified audit report in which of the following circumstances?

Wilson & Friend CPAs issued an audit report on financial statements prepared by Apples and Oranges Unlimited. An extra paragraph was added at the end of the audit report. Which of the following is not a reason for this extra paragraph?

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