What should auditors do if there are doubts regarding the going concern assumption?

What should auditors do if there are doubts regarding the going concern assumption?

• A. Ignore the concerns and proceed
• B. Discuss and review relevant financial information with management
• C. Immediately report to shareholders
• D. Conduct a full audit without further consideration

Answer: (B)

When auditors have doubts about the going concern assumption, it is crucial for them to engage in a thorough discussion and review of the relevant financial information with management. This step is vital because the going concern assumption is foundational to the financial statements, indicating that the entity is expected to continue its operations for the foreseeable future, generally considered to be at least 12 months from the date of the financial statements. By discussing and reviewing financial information with management, auditors can gain insights into the factors contributing to their concerns, such as cash flow projections, financing arrangements, and any potential risks that could jeopardize the business's viability. This dialogue is essential for the auditors to understand management’s perspective, explore management's plans to address any identified risks, and assess the overall reasonableness of the going concern assumption. Engaging with management in this manner allows the auditors to compile a comprehensive set of information that enables them to make informed decisions regarding the necessity for any additional audit procedures and disclosures related to going concern. If it becomes evident that the going concern assumption is not appropriate based on the gathered information, auditors would then need to consider the implications for the financial statements and their audit report. This proactive approach to addressing concerns about the going concern assumption ensures that any uncertainties are thoroughly

When auditors have doubts about the going concern assumption, it is crucial for them to engage in a thorough discussion and review of the relevant financial information with management. This step is vital because the going concern assumption is foundational to the financial statements, indicating that the entity is expected to continue its operations for the foreseeable future, generally considered to be at least 12 months from the date of the financial statements.

By discussing and reviewing financial information with management, auditors can gain insights into the factors contributing to their concerns, such as cash flow projections, financing arrangements, and any potential risks that could jeopardize the business's viability. This dialogue is essential for the auditors to understand management’s perspective, explore management's plans to address any identified risks, and assess the overall reasonableness of the going concern assumption.

Engaging with management in this manner allows the auditors to compile a comprehensive set of information that enables them to make informed decisions regarding the necessity for any additional audit procedures and disclosures related to going concern. If it becomes evident that the going concern assumption is not appropriate based on the gathered information, auditors would then need to consider the implications for the financial statements and their audit report.

This proactive approach to addressing concerns about the going concern assumption ensures that any uncertainties are thoroughly