Explanation.
QUESTION: 29
Mead, CPA, had substantial doubt about Tech Co.'s ability to continue as a going concern when
reporting on Tech's audited financial statements for the year ended June 30, 19X4. That doubt
has been removed in 19X5. What is Mead's reporting responsibility if Tech is presenting its
financial statements for the year ended June 30, 19X5, on a comparative basis with those of
19X4?

A. The explanatory paragraph included in the 19X4 auditor's report should not be repeated.
B. The explanatory paragraph included in the 19X4 auditor's report should be repeated in its
entirety.
C. A different explanatory paragraph describing Mead's reasons for the removal of doubt should
be included.
D. A different explanatory paragraph describing Tech's plans for financial recovery should be
included.

Answer(s): A
Explanation:
Choice "a" is correct. If substantial doubt about the entity's ability to continue as a going concern
has been removed in the current period, the explanatory paragraph included in the prior period
auditor's report should not be repeated, and no description of the reasons or plans for recovery
need be included. Choice "b" is incorrect. If doubt about the going concern assumption has
been removed in the current period, it is not appropriate to include the explanatory paragraph
from the prior year in the auditor's report for the current year. Choice "c" is incorrect. If doubt
about the going concern assumption has been removed in the current period, no explanatory
paragraph is required since the situation no longer exists. The auditor does not have to explain
the reason for the change. Choice "d" is incorrect. If doubt about the going concern assumption
has been removed in the current period, no explanatory paragraph is required since the
situation no longer exists. The entity does not have to describe its plans for the future.
QUESTION: 30
March, CPA, is engaged by Monday Corp., a client, to audit the financial statements of Wal
Corp., a company that is not March's client. Monday expects to present Wall's audited financial
statements with March's auditor's report to 1st Federal Bank to obtain financing in Monday's
attempt to purchase Wall. In these circumstances, March's auditor's report would usually be
addressed to:

A. Monday Corp., the client that engaged March.
B. Wal Corp., the entity audited by March.
C. 1st Federal Bank.
D. Both Monday Corp. and 1st Federal Bank.

Answer(s): A
Explanation:
Choice "a" is correct. The auditors should address their report to the entity that engaged them.
In this case, Monday Corp. engaged the auditor to perform an acquisition audit and the report
should be addressed to Monday. Choice "b" is incorrect. Wal Corp. did not engage the auditors
and thus the report should not be addressed to them. Choices "c" and "d" are incorrect. Even

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