Question

Read “The auditor’s consideration of an entity’s ability to continue as a going concern.”

Based on the reading, analyze the auditor’s responsibility to determine whether a company can continue as a going concern. From your analysis, propose at least two (2) key factors auditors need to consider when determining an entity’s ability to continue as a going concern. Provide your rationale.

Answer 1

GOING CONCERN

A COMPANY IS SAID TO BE A GOING CONCERN IF IT HAS THE ABILITY TO CARRY ON BUSINESS FOR A LONG PERIOD OF TIME IN FUTURE. IT IS AN IMPORTANT THING THAT THE SUCCESS OF A COMPANY DEPENDS. THE TERM GOING CONCERN IS SIMPLE BUT THE RISK OF THE COMPANY TO MAINTAIN IT AS A GOING CONCERN IS HIGH. DUE TO THIS REASON AUDITORS FINDINGS AND REPORTS PLAY IMPORTANT ROLE IN DETERMINING WHETHER A COMPANY IS TREATED AS A GOING CONCERN OR NOT

FACTORS TO BE CONSIDERED BY THE AUDITOR

      AUDITORS ARE RESPONSIBLE FOR THE POSTMORTEM ANALYSIS OF THE COMPANY'S FINANCIAL STATEMENT TO DETERMINE WHETHER ITS ACTIVITIES ARE IN DIRECT WAY. EACH AND EVERY TRANSACTIONS THAT AFFECT THE COMPANY SHOULD BE CAREFULLY EVALUATED BY THE AUDITORS. THE TWO KEY FACTORS TAKE IN TO CONSIDERATION BY THE AUDIT TEAM ARE DESCRIBED BELOW

1. ABILITY OF THE COMPANY TO PAY DEBTS

       DUE TO NECESSITY ,COMPANIES PURCHASE RAW MATERIALS AND OTHER ITEMS ON CREDIT BASIS. SO CREDITORS SHOULD BE PAID IN TIME.OTHERWISE THE SUPPLIERS MAY NOT READY TO SUPPLY PRODUCTS ON CREDIT BASIS. UN AVAILABILITY OF RAW MATERIALS LEAD TO STOPPAGE OF WORK AND ALSO LEAD TO MARKET LOSS. DUE TO HIGH COMPETITION ,PRODUCT ACCORDING TO DEMAND SHOULD BE AVAILABLE IN THE MARKET AS AND WHEN THE NECESSITY ARISE. SO THERE SHOULD BE A PLEASANT RELATIONSHIP BETWEEN CREDITORS AND THE COMPANY.THAT MEANS TIMELY SETTLEMENT OF DEBTS.

        SO THE AUDITOR SHOULD EVALUATE THE DEBT PAYING CAPACITY OF THE BUSINESS .DEFAULT IN PAYING DEBT MAY AFFECT THE CONCEPT OF GOING CONCERN.

2. FINANCIAL STATEMENT SHOWING CONTINUES LOSS

        AS WE ALL KNEW THAT LOSS IS A DANGEROUS SITUATION AND DIRECTLY AFFECT THE ON GOING BUSINESS OF THE COMPANY. A FINANCIAL STATEMENT SHOWING CONTINUES LOSS MEANS THAT THE COMPANY IS NOT IN A POSITION TO CARRY ON BUSINESS WELL. THIS MAY BE DUE TO VARIOUS FACTORS SUCH AS HIGH COMPETITION, CHANGE OF TECHNOLOGIES, DISPUTES ARISE INSIDE AND OUTSIDE THE COMPANY, DECISION MAKING PROBLEMS,RAW MATERIAL AVAILABILITY ETC........

AUDITOR SHOULD PROPERLY EVALUATE AND FIND THE REASON FOR CONTINUES LOSS AND SUGGEST NECESSARY STEPS TO OVERCOME THE SITUATION. OTHERWISE THE COMPANY WILL NOT LAST FOR LONG............

   THANKING YOU ............