Question

The adverse effects of events causing an auditor to believe there is substantial doubt about an entity's ability to continue as a going concern would most likely be mitigated by evidence relating to the

a. Ability to expand operations into new product lines in the future.
b. Feasibility of plans to purchase leased equipment at less than market value.
c. Marketability of assets that management plans to sell.
d. Committed arrangements to convert preferred stock to long-term debt.

Answer 1

Evidence related to the marketability of assets planned for sale can mitigate concerns about a company's ability to continue as a going concern because it provides potential for immediate cash flows to support operations.

Step-by-step explanation:

The adverse effects of events causing an auditor to believe there is substantial doubt about an entity's ability to continue as a going concern would most likely be mitigated by evidence relating to the marketability of assets that management plans to sell. This is because such assets can provide immediate cash flows to support the company's operations and help alleviate immediate financial difficulties. Accordingly, this would reassure the auditor that the company has the means to sustain itself in the near term.

In contrast, ability to expand into new product lines, the feasibility of purchasing leased equipment, or arrangements to convert preferred stock to long-term debt are all longer-term strategies and might not provide the immediate financial support that is necessary to alleviate the concern over the entity's immediate ability to continue as a going concern.