Question

If auditors determine there is substantial doubt about the entity continuing as a going concern, _______.

A. then the auditor should immediately notify the Securities and Exchange Commission (SEC)
B. the next step is to obtain information about management's plans to mitigate or minimize the adverse effects of the situation
C. the next step is to obtain information about the auditor's plans to mitigate or minimize the adverse effects of the situation.
D. the next step is to ensure the client is immediately billed for all services performed, to ensure payment

Answer 1

Auditors must obtain information about management's plans when there is doubt about an entity's going concern status; it is not their duty to notify the SEC or ensure payment for services in this context.

Step-by-step explanation:

If auditors determine there is substantial doubt about the entity continuing as a going concern, the next step is to obtain information about management's plans to mitigate or minimize the adverse effects of the situation. It is not the auditor's responsibility to notify the Securities and Exchange Commission (SEC) immediately or to develop their plans to mitigate the situation. Moreover, ensuring immediate billing for services to secure payment is a business decision and is not related to the auditor's duties regarding going concern assessments.

In the context of the 2008-2009 recession, many U.S. banks faced significant financial challenges, raising questions about the foresight of bank supervisors. Laws enacted in the 1990s mandated transparency from bank supervisors but did not prevent the accumulation of large losses. In such cases, auditors play a critical role in addressing potential continuity issues and discussing with management their plans for maintaining the operation of the business.