documented.
QUESTION: 15
After considering an entity's negative trends and financial difficulties, an auditor has substantial
doubt about the entity's ability to continue as a going concern. The auditor's considerations
relating to management's plans for dealing with the adverse effects of these conditions most
likely would include management's plans to:

A. Increase current dividend distributions.
B. Reduce existing lines of credit.
C. Increase ownership equity.
D. Purchase assets formerly leased.

Answer(s): C
Explanation:
Choice "c" is correct. The auditor considers any of management's plans that might serve to
mitigate the adverse effects of particular conditions and events. Typically, plans to increase
ownership equity, to borrow money, to restructure debt, to sell assets, and/or to reduce or delay
expenditures might all be considered mitigating factors.
Choices "a", "b", and "d" are incorrect. Increasing dividend distributions, reducing lines of credit,
and purchasing assets would not improve a weak cash flow situation.
QUESTION: 16
In which of the following situations would an auditor ordinarily choose between expressing a
qualified opinion or an adverse opinion?

A. The auditor did not observe the entity's physical inventory and is unable to become satisfied
about its balance by other auditing procedures.
B. Conditions that cause the auditor to have substantial doubt about the entity's ability to
continue as a going concern are inadequately disclosed.
C. There has been a change in accounting principles that has a material effect on the
comparability of the entity's financial statements.
D. The auditor is unable to apply necessary procedures concerning an investor's share of an
investee's earnings recognized on the equity method.

Answer(s): B
Explanation:
Choice "b" is correct. Inadequate disclosure of the substantial doubt about an entity's ability to
continue as a going concern is a departure from GAAP, resulting in either a qualified or adverse
opinion. Choices "a" and "d" are incorrect. Scope limitations result in either a qualified opinion or
in a disclaimer of opinion, but not in an adverse opinion. Choice "c" is incorrect. A change in
accounting principle results in a modified unqualified report, as long as the change was
accounted for properly.
QUESTION: 17
Which of the following conditions or events most likely would cause an auditor to have
substantial doubt about an entity's ability to continue as a going concern?
https://Free-Braindumps.com

Free AICPA CPA-Auditing Exam Braindumps (page: 7)

CPA-Auditing Exam Discussions & Posts