CPA Audit Exam-Going Concern Section of the Auditor's Report. By Darius Clark!

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The CPA Audit exam requires a candidate to know how the audit report is impacted for going concern issues. What is the auditor’s responsibility when there is substantial doubt about the entity’s ability to continue as a going concern. Are there specific audit procedures performed with the purpose of detecting going concern problems? What does the audit report look like when there are going concern issues? When does the auditor have to add a “Going Concern” Section to the Auditor’s report? With analytical procedures, the auditor looks for negative trends or adverse financial ratios such as a negative current ratio or negative quick ratio. Auditor requests attorney’s letters for pending litigation, compliance with debt covenants, Reading the minutes of the Board of Directors Meetings, Inquiries of Management regarding whether they evaluated going concern, talk to 3rd Parties who could be offering financial support and get written evidence if there are such parties, subsequent events such as uninsured disasters would point to a going concern issue. In a situation in which the auditor has substantial doubt about an entity's ability to continue as a going concern, the auditor is responsible for considering the possible effects on the financial statements and evaluating the adequacy of related disclosure in the financial statements. Such disclosures might include conditions that give rise to the assessment of “substantial doubt”, as well as management's plans to mitigate the going concern issues.