What are the auditor's responsibilities for 'going concern assumptions
(a) What are the auditor's responsibilities for 'going concern assumptions’'? (250 -300 words)
(b) Maxim Stewart is the partner in charge of the audit for a new client, Southern Southerland (SS). The client engaged Maxim's audit firm in November 2017, in preparation for the 2018 audit. From 30 January 2018 onwards, SS has consistently paid its suppliers late, well in excess of the suppliers' agreed credit terms. This has resulted in some suppliers demanding cash on delivery from SS. Maxim is also aware from his review of correspondence between SS and its bank that the company has been experiencing
Required:
Identify any significant events or conditions that individually or collectively may cast significant doubt on SS's ability to continue as a going concern (290 - 320 words)
(a) In order to make the accounting language convey the same meaning to all people and to make it more meaningful there are some Accounting concepts and assumptions which are usually followed. one of them is Going Concern assumption.
Going Concern Assumptions - As per this concept it is said that the business will continue to exist for a long period in the future. The tractions are recorded in the books of the business on the assumption that it is a continuing enterprise. It is on this concept that we record fixed assets at their original cost and depreciation is charged on these assets without reference to their market value.
For example, if a machinery-is purchased which would lust, say, for the next 8 years, the cost of this machinery will be spread over the next 8 years for calculating the net profit or loss of each year. Because of the concept of going concern the full cost of the machine would not be treated as an expense in the year of its purchase itself. The market value of the fixed assets is irrelevant and is not recorded in the balance sheet. as these assets are not going to be sold in the near future.
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