Dave and Charlie are sitting at lunch one day on the premises of one of their large audit clients when the topic of going concern comes up. Dave mentions to Charlie that he vaguely recalls hearing this term in his accounting classes back in college, but doesn't remember what this means or why it is part of the audit. Which of the following responses by Charlie would help Dave to understand this? (Select all that apply.) Going concern deals with the entity's ability to continue operating as an enterprise, and is an important assumption that the auditor should evaluate. The going concern assumption is required to be evaluated by management each year for the forthcoming year. The going concern assumption is tested by evaluating management's breach of loan and debt covenants over the past three years. Going concern really speaks to the client firm's ability to pay its short-term liabilities when they come due, and whether the firm will need to refinance maturing loans to conserve cash.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Dave and Charlie are sitting at lunch one day on the premises of one of their large audit clients when the topic of going concern comes
up. Dave mentions to Charlie that he vaguely recalls hearing this term in his accounting classes back in college, but doesn't remember
what this means or why it is part of the audit. Which of the following responses by Charlie would help Dave to understand this? (Select
all that apply.)
Going concern deals with the entity's ability to continue operating as an enterprise, and is an important assumption that the
auditor should evaluate.
The going concern assumption is required to be evaluated by management each year for the forthcoming year.
The going concern assumption is tested by evaluating management's breach of loan and debt covenants over the past three
years.
Going concern really speaks to the client firm's ability to pay its short-term liabilities when they come due, and whether the
firm will need to refinance maturing loans to conserve cash.
Transcribed Image Text:Dave and Charlie are sitting at lunch one day on the premises of one of their large audit clients when the topic of going concern comes up. Dave mentions to Charlie that he vaguely recalls hearing this term in his accounting classes back in college, but doesn't remember what this means or why it is part of the audit. Which of the following responses by Charlie would help Dave to understand this? (Select all that apply.) Going concern deals with the entity's ability to continue operating as an enterprise, and is an important assumption that the auditor should evaluate. The going concern assumption is required to be evaluated by management each year for the forthcoming year. The going concern assumption is tested by evaluating management's breach of loan and debt covenants over the past three years. Going concern really speaks to the client firm's ability to pay its short-term liabilities when they come due, and whether the firm will need to refinance maturing loans to conserve cash.
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