Use of the going concern basis of accounting is inappropriate. Consider the following example: an entity has loans of CU10 million. which became immediately redeemable on 31 March 20X2.The entity has already breached its agreed overdraft and the bank has refused to renew the loans.
In which of the following circumstances would a disclaimer of opinion not be appropriate?
In which of the following circumstances would a disclaimer of opinion not be appropriate?Management does not provide a reasonable justification for a change in accounting principles.
When and under what conditions should an entity be considered a going concern?
An entity's financial statements are always prepared on a going concern basis, unless otherwise stated. Under the assumption of continuitythe entity is expected to continue in business for at least a 12-month period from the entity's reporting date.
Which of the following operating conditions could cast doubt on the going concern assumption?
The following factors may call into question the status of continuity:
- negative operating cash flows;
- Main adverse financial ratios;
- Inability to repay the loan/creditors on due dates;
- management's intentions to liquidate the entity;
- labor difficulties;
- Failure to comply with legal requirements.
When is a company not a constant concern?
If a business is not a constant concern, it meanswent bankrupt and its assets were liquidated. For example, many dotcoms will no longer care about companies after the tech boom of the late 1990s.
Why wouldn't a company prepare its financial statements on a going concern basis?
This is confirmed by IAS 10, which states that “an entity shall not prepare its financial statements on a going concern basis.
if management determines after the reporting period date that it intends to liquidate the entity or cease operations, or has no realistic alternative but to do so
(NIC 10.14).
The assumption of continuity
How do we assess whether customers are a JOB CONCERN? ASA/ISA570 explained
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In which of the following circumstances may an auditor refrain from issuing an opinion?
In which of the following circumstances can auditors withhold an opinion?There was a material change between periods in the method of applying accounting principles. There are significant limitations on the scope of the audit.
Which of these two circumstances will make an auditor unable to express an unqualified opinion?
Based on ISA 700, there are at least two circumstances in which the auditor may not be able to express an unqualified opinion:
Scope limitation and fraud
.
Under what circumstances would an auditor be more likely to express an adverse opinion?
8. The auditor must express an adverse opinionwhen the auditor, having obtained sufficient appropriate audit evidence, concludes that the misstatements, individually or in the aggregate, are material and pervasive in the financial statements.
When have conditions and events been identified that may raise significant doubt?
If events or conditions are identified that could cast significant doubt on the entity's ability to continue operatingafter the auditor's risk assessments are performedIn addition to applying the procedures in paragraph 16, it may be necessary to review the auditor's assessment of the risks of material misstatement.
Which of the following are indicators of continuity problems?
Continuity Indicators:
Significant decrease in sales revenue. …
Large debt or past due interest. …
A large amount of overdraft. …
Lack of Research and Development Fund. …
Loss of key management. …
Cash flow problems. …
Lost of the Grand Design.
Which of the following conditions or events would likely cause an auditor to have substantial liability?
Which of the following conditions or events is likely to cause an auditor to have substantial doubt about an entity's ability to continue operating?Suppliers' usual trade credit is denied..
Which of the following can affect an entity's going concern status?
Which of the following can affect an entity's going concern status?high gear ratio(Long-Term Debt to Equity Ratio). Correct. The indebtedness ratio above industry norms makes the entity vulnerable to delays in the payment of installments and interest on the loan with the final risk of liquidation.
What is one implication of the continuity assumption?
The going concern assumption is an accounting definition for a business entity that is
is considered capable of continuing its operations in future periods
. For a business to be a "going concern," it must be financially stable and the accounting for the business must be properly maintained.
What is the going concern assumption regarding the perspective of an auditor performing an audit on a business or organization?
The principle of continuity presupposes thatany organization.Organizational structures will continue to operate your business for the foreseeable future..
What constitutes a continuity?
What is a constant worry? The term "continuity" refers tothe sale of a business where an entrepreneur sells his business to a buyer, with everything necessary for the buyer to continue operating the business.
What happens when the concept of business entity is not observed?
The concept ensures that each business entity is taxed separately. The use of the concept of business entity is very general among business organizations. If a company ignores this concept,
would not be able to compare its financial performance with that of other companies in the sector
.
What is the basis of non-continuity?
When an entity does not prepare financial statements on a going concern basis, it shall disclose that fact, together with the basis on which the financial statements were prepared and the reason why the entity is not considered to be a going concern” (IAS 1.25). .
Why is it important to determine when an entity is still considered a going concern?
A reporting entity that it believes the going concern basis of accounting is appropriate, but still has a material uncertainty present, shall disclose that fact in the financial statements thatthere are uncertain future transactions/events that may result in the entity's inability to continue…
Why do accounts need to assume that a business entity will continue to operate?
The concept of continuity assumes that a company would continue to carry out its operations indefinitely; allows accountants to shift from income for one period only that part of the assets that were consumed or used to earn that income in that period and carry the remaining amount over to the next...
When are there substantial doubts about a company's ability to continue operating?
Substantial doubt exists about an entity's ability to continue operating when conditions and events, taken together, indicate that the entity is likely to be unable to meet its obligations when they come due within one year after the date they were issued. the financial statements of the entity. are issued (or…
Which of the following would likely be an appropriate recipient for an audit report?
Which of the following would most likely be an appropriate recipient for an audit report?
Shareholders of the corporation whose financial statements were audited
. The term “except for” in an audit report is: Used in a qualified opinion.
When should an audit report be dated?
01 The auditor will date the audit reportnot earlier than the date the auditor has obtained sufficient appropriate evidence to support the auditor's opinion.
What are the five necessary circumstances for an unqualified opinion?
3-6 An unqualified report may be issued in the following five circumstances:
- All statements (balance sheet, income statement, statement of retained earnings, and statement of cash flows) are included in the financial statements.
- The three general rules were followed in all aspects of the job.
When can an auditor issue an unqualified opinion?
it emits
when the auditor believes that all changes, accounting policies and their application and effects have been accurately disclosed
.
Under which of the following circumstances is an auditor least likely to issue an unqualified audit opinion?
Under which of the following circumstances is an auditor least likely to issue an unqualified audit opinion?The auditor believes that the financial statements contain some exceptions to accounting standards..
In which of the following circumstances would a disclaimer of opinion be inappropriate?
Under which of the following circumstances would the expression of a disclaimer of opinion be inappropriate?Management does not provide a reasonable justification for a change in accounting principles.
Under which of the following circumstances is a disclaimer of opinion?
In which of the following circumstances would a disclaimer of opinion on the entity's financial statements be inappropriate?
The financial statements do not contain adequate disclosure of transactions with related parties
.
For which of the following situations would an auditor issue an adverse opinion?
The primary reason for issuing an adverse audit opinion is thatthe client's financial statements contain a general and unreasonable deviation from GAAP. An adverse opinion would contain language indicating that the financial statements are not presented fairly in accordance with GAAP.
When and under what conditions should an entity be considered a going concern?
An entity's financial statements are always prepared on a going concern basis, unless otherwise stated. Under the assumption of continuity
the entity is expected to continue in business for at least a 12-month period from the entity's reporting date
.
Which of the following operating conditions could cast doubt on the going concern assumption?
The following factors may call into question the status of continuity:
- negative operating cash flows;
- Main adverse financial ratios;
- Inability to repay the loan/creditors on due dates;
- management's intentions to liquidate the entity;
- labor difficulties;
- Failure to comply with legal requirements.
Why do we need to consider the going concern assumption in our audit?
continuity assumption
In particular,the implicit assumptions behind such an approach may no longer be valid in today's environment. Problems related to liquidity and credit risk can create new uncertainties or exacerbate existing ones.