Question

Analytical procedures during risk assessment of a going concern _______.

A. May identify negative trends such as working capital deficiencies, adverse key financial ratios, and decreasing cash flow from operations
B. May identify positive trends such as working capital deficiencies, adverse key financial ratios, and decreasing cash flow from operations
C. May identify only external matters that have occurred such as loss of a key franchise, loss of a principal customer, or work stoppages due to natural disaster
D. May identify internal matters that have occurred such as legal proceedings

Answer 1

Analytical procedures during risk assessment of a going concern may identify negative trends such as working capital deficiencies, adverse key financial ratios, and decreasing cash flow from operations (Option A).

Step-by-step explanation:

During the risk assessment of a going concern, analytical procedures are employed to evaluate financial information for potential risks to the entity's ability to continue operating. Option A is correct as these procedures aim to identify negative trends that may indicate financial instability, such as working capital deficiencies, adverse financial ratios, and decreasing cash flow from operations.

Identifying these negative trends is crucial for assessing the risk of a going concern. Options B, C, and D do not accurately represent the focus of analytical procedures during risk assessment.

Option A is the answer.