Question

43. When considering whether a client is a going concern, the auditor under GAAS must look at a cash flow forecast that covers what period of time and why? ______________________________________________________________________________ ______________________________________________________________________________44. A summary of unadjusted differences is made up of what three components discussed in class? ______________________________________________________________________________ ______________________________________________________________________________ __________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

45. A client’s major customer, who owes the client a material amount of money, goes bankrupt after its 12/31 year-end but before the audit report is issued. The auditor determines that the client will not collect its accounts receivable from that customer and that the underlying condition existed at the balance sheet date. The bankruptcy is referred to under GAAS as a _____________________________________________________________________________.   How does the auditor address this situation? __________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

46. What is the standard for an auditor to conclude it must issue a going concern opinion?

S______________________________- D_________________________.

Answer 1

43. When considering whether a client is a going concern, the auditor under GAAS must look at a cash flow forecast that covers what period of time and why?

Answer:

In accessing the going concern assumption auditor should access the management assessment of the entity ability to continue as a going concern.

The auditor should cover the same period as used by the management to make the assessment of the entity ability to continue as a going concern.

If the period covers the less than twelve month from the date of the financial statement the auditor the auditor should request the management to extend the period to at least twelve month.

Auditor should ask the management for the representation of the future plans and actions and their feasibility so that to assure that the company will continue at lease twelve month (till the next assessment.)

44. A summary of unadjusted differences is made up of what three components discussed in class?

Answer:

1. Factual Misstatements: There are the misstatements about which there is no doubt.
2. Judgmental Misstatement: There are the difference which arise from the judgment of the management with respect to accounting estimate that auditor consider unreasonable.
3. Projected Misstatements: These are the auditors best estimate of misstatement in Population involving the projection of misstatement identified in the audit sample.

The auditor should document all the points relating to misstatement which are as follows.

• The misstatement identified during the audit is corrected.
• The conclusion of the auditor whether the uncorrected misstatements are material, individually or in aggregate.
• The amount below the misstatements would be regarded as clearly trival.

45. A client’s major customer, who owes the client a material amount of money, goes bankrupt after its 12/31 year-end but before the audit report is issued. The auditor determines that the client will not collect its accounts receivable from that customer and that the underlying condition existed at the balance sheet date. The bankruptcy is referred to under GAAS as a

Answer:

The bankruptcy is referred to under GAAS as an Event after the reporting period (Balance sheet date).

These Events can be classified in two types:

Adjusting events and Non-Adjusting events.

the client will not collect its accounts receivable from that customer is an Adjusting event.

Client a material amount of money, goes bankrupt after its 12/31 year-end but before the audit report is issued after the reporting date is providing the evidence that the receivable if no longer an asset for the company and it should be recognized in the financial statement by reducing the amount of receivable to its recoverable amount.

The auditor should also disclose this amount in its audit report.

46. What is the standard for an auditor to conclude it must issue a going concern opinion?

Answer:

AU Section 341

The auditor should obtain the sufficient and appropriate audit evidence to determine that whether there is any material uncertainty and conclude regarding the appropriateness of the management use of the going concern basis of accounting.

Based on the audit evidence obtained auditor should give judgment on the material uncertainty and whether there is any doubt on the company ability to continue as a going concern.

The auditor should disclose the nature and implication of the uncertainty.

1. In case of fair presentation of the financial reporting framework, fair presentation of the financial statement.
2. In case of compliance framework, the financial statement is not misleading.