Final answer:
The auditor assesses the going concern of a company based on the concept of substantial doubt. This involves analyzing financial conditions and other relevant factors and results in the auditor's report expressing an opinion on the company's ability to continue operations for the next 12 months.
Step-by-step explanation:
The auditor is responsible for assessing whether there is substantial doubt about a company's ability to continue as a going concern for the next 12 months. This evaluation is based on information gathered during the audit, including the company's financial condition, market conditions, and other relevant factors indicating the entity’s ability to continue its operations. The concept of going concern is an essential aspect of financial reporting and the audit process.
To evaluate the going concern assumption, the auditor will consider various elements, such as financial ratios, trends, cash flow projections, and external market conditions. They will also assess the adequacy of disclosures related to any risks and uncertainties. If the auditor determines that there is a substantial doubt, they must include this finding in their audit report. It's important to note that the auditor does not provide absolute assurance, but rather gathers sufficient appropriate evidence to conclude whether there is substantial doubt regarding the entity's ability to continue as a going concern.
Regarding a 20-year period, if we are considering the likelihood of a periodic event such as audits, we would need additional information to calculate how many audits are expected, as well as the probabilities of not being audited or of being audited more than twice.