When an auditor concludes there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time, the auditor's responsibility is to
A) Prepare prospective financial information to verify whether management's plans can be effectively implemented.
B) Project future conditions and events for a period of time not to exceed one year following the date of the financial statements.
C) Issue a qualified or adverse opinion, depending upon materiality, because of the possible effects on the financial statements.
D) Consider the adequacy of disclosure about the entity's possible inability to continue as a going concern.

Question

Quizplus · Accepted Answer

When an auditor concludes there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time, the auditor's responsibility is to consider the adequacy of disclosure about the entity's possible inability to continue as a going concern. This means that the auditor should assess whether the financial statements include sufficient and appropriate disclosures related to the entity's ability to continue operating as a going concern. The auditor should also evaluate management's plans to alleviate the going concern issue and consider the likelihood of success of those plans. The auditor may need to modify the audit report to include an emphasis-of-matter paragraph or an explanatory paragraph to draw attention to the disclosure about the entity's possible inability to continue as a going concern. However, the auditor should not prepare prospective financial information or project future conditions and events. Additionally, a qualified or adverse opinion would only be necessary if the auditor believes that the financial statements are materially misstated due to inadequate disclosure about the entity's going concern situation.

When an Auditor Concludes There Is Substantial Doubt About an Entity's