Homework

Going Concern

Please respond to the following:

--From the e-Activity, analyze the auditor’s responsibility to determine if a company can continue as a going concern. From your analysis, propose at least two (2) key factors that the auditor should consider when determining an entity’s ability to continue as a going concern. Provide a rationale to support your proposal.

--From the case study, analyze the inquiry letter sent by C.R. Brown. Next, determine at least one (1) omission that you believe occurred within the letter, and suggest one (1) way to improve the letter so that Consolidate d’s outside attorney may corroborate the information in the case. Provide a rationale to support your response. [1-2 references][250 words].

Please read the following note on Going Concern to guide your responsesto questions.

Going Concern Analysis by Auditors

According to IAS 570, a detailed going concern analysis need not be required for an entity that has a history of profitability and access to financial resources. However with the most recent economic environment (the credit crisis and economic downturn) the landscape has changed. The validity of longstanding approaches no longer hold and undermines previous assumptions. Current economic uncertainties, issues around liquidity and credit risk create new assumptions. Therefore, auditors must approach an entity’s assumptions with the current market environment in mind. The solution is for auditors to supplement prior year reviews with robust analysis that deals with the current economic conditions.

Critical to this assessment, IAS 1 requires management to take, “into account all available informa­tion about the future, which is at least, but is not limited to, twelve months from the balance sheet date.” IAS 570 requires auditors to consider the same timeframe. But if the auditors feel that managements review time period is less than twelve months, the auditor is required to ask management to increase its review period up to one year after the balance sheet date. If management is unwilling to comply, the auditor is required to consider modifying the audit report as to a limitation to the audit scope period.

The auditor is required to assess management’s knowledge of event or conditions and related enterprise risks beyond the period of assessment as the significant doubt on the enterprise’s ability to remain as a going concern.

References

IFAC (2011). Economic Conditions Continue to Challenge Preparers and Auditors Alike; Focus Must Include Going Concern Assumption and Adequacy of Disclosures. Retrieved on August 23, 2013 from http://www.ifac.org/news-events/2011-12/economic-conditions-continue-challenge-preparers-and-auditors-alike-focus-must-i

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