Ability to Continue as a Going Concern

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School

Temple University *

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3531

Subject

Accounting

Date

Nov 24, 2024

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pdf

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Uploaded by naikamit

Ability to Continue as a Going Concern The auditor must specifically document evidence during the audit that may indicate the client’s ability to remain a going concern. Negative trends identified by analytical procedures, loss of major customer, or information received from the attorney can be indications of a potential. The auditor has a discussion with the audit committee and management to express the auditor’s concerns. The auditor will also ask if there are any situations after the balance sheet date that the committee is aware of. Finally, the auditor wants to know the plans to reduce the risk of potential business failure. The auditor must now consider all the facts and circumstances including the likelihood that of management’s plans will be successful. Going Concern issues impact the audit opinion which covered in the next lesson. Reviewing for Commitments GAAP requires proper presentation and disclosure of commitments. A commitment is a contractual agreement that binds the company to some type of future action regardless of the economic benefit or loss that may occur. What is the company committing to? The use of or receipt of CASH! The following is a sample of a purchase agreement disclosure: The company has entered into a contract to purchase a minimum of 100,000 tons of coal per year for the next 25 years at a fixed price of $17.50 per ton, with no price escalation allowed for the duration of the contract. The company’s minimum annual payment obligation under this contract is $1,750,000. The price paid under this contract is $1.50 less than the market rate for anthracite coal as of the date of these statements, and had not significantly changed as of the statement issuance date. Other commitments that would require disclosure are employment contracts, hedge contracts, sales agreements and dividend restrictions. The audit procedures require the auditor to review all commitment type arrangements already disclosed in financial statements and ask management about the existence of any other contractual arrangements not disclosed that may meet the definition of a commitment.

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