Question

Which one of the following would the auditor consider to be an indication of a potential going-concern problem?

a. Loss of the controller to a competitor.

b. Improper reporting of internal controls by management.

c. Adverse key financial ratios.

d. Large increase in sales in the month previous to year-end.

Answer 1

Adverse key financial ratios can be an indication of a potential going-concern problem.

Step-by-step explanation:

The auditor would consider adverse key financial ratios as an indication of a potential going-concern problem.

Adverse key financial ratios indicate that a company is facing financial difficulties and may struggle to continue its operations in the future.

These ratios could include a low current ratio, high debt-to-equity ratio, or declining profitability ratios.