Question

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

A. The next step is to obtain information about management's plans to mitigate or minimize the adverse effects of the situation.
B. The next step is to obtain information about the auditor's plans to mitigate or minimize the adverse effects of the situation.
C. They should immediately issue an adverse opinion and withdraw from the engagement.
D. The auditors should immediately invoice the client for the cost of the audit and request payment within 30 days.

Answer 1

When auditors have substantial doubt about an entity's ability to continue as a going concern, they should obtain information about management's plans to mitigate the situation, not issue an adverse opinion or invoice immediately. Option A is correct.

Step-by-step explanation:

If auditors determine there is substantial doubt about the entity continuing as a going concern, A. The next step is to obtain information about management's plans to mitigate or minimize the adverse effects of the situation. This involves an understanding of management's plans and whether it is probable that these plans will alleviate the substantial doubt. Auditors are required to evaluate the feasibility of the management's plans, and if they are not satisfied with the plans or their implementation, it can affect the audit report they issue.

An adverse opinion is issued when the financial statements do not present fairly in accordance with the applicable financial reporting framework, which is a different matter from the going concern issues. The issuance of an audit invoice and request for payment, whether immediate or otherwise, is a business practice and not specifically related to the going concern assessment.