Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity’s ability to continue as a going concern?

Last Updated on February 1, 2022 by Admin 3

Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity’s ability to continue as a going concern?

  • Cash flows from operating activities are negative. 
  • Research and development projects are postponed.
  • Significant related party transactions are pervasive.
  • Stock dividends replace annual cash dividends.
Explanation:
Choice “A” is correct. Negative cash flows from operating activities most likely would cause an auditor to have substantial doubt about an entity’s ability to continue as a going concern.
Choices “B” and “D” are incorrect. Plans to reduce or delay cash expenditures are mitigating factors conserving cash (e.g., postponing R&D projects and replacing cash dividends with stock dividends). This would not ordinarily cause an auditor to have substantial doubt about an entity’s ability to continue as a going concern.
Choice “C” is incorrect. The existence of significant related party transactions should be disclosed but would not ordinarily cause an auditor to have substantial doubt about an entity’s ability to continue as a going concern.
0 0 votes
Article Rating
Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments