An auditor has substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time because of negative cash flows and working capital deficiencies. Under these circumstances, the auditor would be most concerned about the:

Question

BlackTom AI · Accepted Answer

Auditor must evaluate the possible effects on the entity’s financial statements when substantial doubt about going concern exists.

1. Relevant knowledge points and concepts
- AU-C 570 (or equivalent standards) requires auditors to assess whether there is substantial doubt about an entity’s ability to continue as a going concern for a reasonable period (normally at least 12 months beyond the balance sheet date).
- Key auditor responsibilities: identify going-concern indicators (negative cash flows, working capital deficiencies), obtain and evaluate management’s plans, assess adequacy of disclosures, and decide on appropriate audit report actions (emphasis-of-matter, qualified/adverse if disclosures are inadequate).
- The primary concern is how these conditions affect measurement, classification, and disclosure in the financial statements (e.g., asset impairment, classification of liabilities, note disclosures).

2. Step-by-step reasoning process
- Step 1: Recognize indicators (negative cash flows, working capital deficiency → potential going-concern problem).
- Step 2: Request management’s plans to mitigate (e.g., borrowings, asset sales, cost reductions, infusion of equity).
- Step 3: Evaluate feasibility and effectiveness of those plans (timing, likelihood, contractual constraints).
- Step 4: Determine whether the financial statements appropriately reflect the situation: Are assets measured correctly? Are liabilities properly classified? Are disclosures adequate and transparent about substantial doubt?
- Step 5: Decide audit report action: include an emphasis-of-matter paragraph if disclosures are adequate; modify the opinion if disclosures are inadequate.

3. Calculations/intermediate steps
- No numeric computation is required; the auditor’s judgment centers on qualitative and quantitative evaluation of management’s plans versus the measurable indicators (cash flow forecasts, liquidity ratios).

4. Why the correct answer is correct
- The immediate auditor concern is the effect on the financial statements—presentation, measurement and especially disclosures—because these determine whether users are properly informed and whether the auditor must modify the report.

5. Why other possible options would be incorrect
- Focusing solely on management intent or internal control would be incomplete: those are inputs to assessing effects but not the auditor’s principal concern. The auditor’s duty culminates in ensuring the financial statements reflect the going-concern uncertainty.

Conclusion: Therefore, the auditor would be most concerned about the possible effects on the entity’s financial statements. This matches the provided correct answer.

An auditor has substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time because of negative cash flows and working capital deficiencies. Under these circumstances, the auditor would be most concerned about the:单项选择题

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