Question

If the auditor concludes that there may be a going-concern problem, which of the following is not typically evaluated to determine the reasonableness of management's plans to overcome this problem?

a. Management's assumption about increasing prices or market share in relationship to current industry developments.

b. Management's assumptions about cost savings related to a reduction in the work force should be recomputed and evaluated to determine any hidden costs.

c. Management's past track record related to delaying unnecessary expenditures.

d. Management's assumptions about selling off assets and their relationship to current market prices.

Answer 1

Option c, management's past track record related to delaying unnecessary expenditures, is generally not evaluated when an auditor assesses the management's plans for overcoming going-concern issues. Auditors focus on current plans and tangible assumptions in their assessments.

Step-by-step explanation:

If an auditor concludes that there may be a going-concern problem with a company, they will typically evaluate management's plans to overcome this issue. However, option c, 'Management's past track record related to delaying unnecessary expenditures,' does not typically fall into the evaluation criteria when determining the reasonableness of management's plans to address a going-concern. Instead, auditors will evaluate current, tangible plans and assumptions, such as anticipated cost savings from workforce reductions, assumptions about increasing market share or prices, and plans to sell off assets in relation to current market values.