Question 1

Going Concern Opinions Read the case and answer the questions that follow. Oftentimes, especially in challenging economic times, companies may not have positive financial results. The professional standards require that auditors evaluate whether there is substantial doubt about the company's ability to continue as a going concern for a reasonable period of time--a year from the balance sheet date. Tremendousjudgment is involved in this phase ofthe audit. It should be noted that while auditors are not required to perform procedures to test the going concern assumption, they must evaluate the assumption in relation to the results of the audit procedures performed relative to the other components of the audit. Read the case and answer the questions that follow. Due to a variety of reasons, such as current economic conditions and individual operating results, companies may not have the ability to continue as a going concern. This assumption is of great interest to users offinancial statements, as GAAP financial statements make the assumption the company will continue. Assets, for example, may be carried at a cost that is higher than liquidation value. Audit standards require that auditors consider whether the company under audit will be able to continue as a going concern. Auditors do not need to perform specific procedures, but they do need to use judgment in making an assessment. Items like the ability to pay debt, negative cash flow issues, legal situations, etc. all come into play. Dillon CPA is the auditor for Sunshine Industries, a manufacturer of widgets. Sunshine's cash flow has cash used in operations of an amount twice that from last year, a net loss and current liabilities exceed current assets by about 25 percent. Company management insists they are spending lots of money investing in new product development and expect to see profits from these new products in the next year. Additionally, according to the CEO of Sunshine Industries, a lawsuit from a former supplier is expected to be settled in the next year. What should the audit team include in its report if the auditors cannot get comfortable with Sunshine management's optimistic attitude? Going Concern Opinions Read the case and answer the questions that follow. Oftentimes, especially in challenging economic times, companies may not have positive financial results. The professional standards require that auditors evaluate whether there is substantial doubt about the company's ability to continue as a going concern for a reasonable period of time--a year from the balance sheet date. Tremendousjudgment is involved in this phase of the audit. It should be noted that while auditors are not required to perform procedures to test the going concern assumption, they must evaluate the assumption in relation to the results of the audit procedures performed relative to the other components of the audit. Read the case and answer the questions that follow. Due to a variety of reasons, such as current economic conditions and individual operating results, companies may not have the ability to continue as a going concern. This assumption is of great interest to users offinancial statements, as GAAP financial statements make the assumption the company will continue. Assets, for example, may be carried at a cost that is higher than liquidation value. Audit standards require that auditors consider whether the company under audit will be able to continue as a going concern. Auditors do not need to perform specific procedures, but they do need to use judgment in making an assessment. Items like the ability to pay debt, negative cash flow issues, legal situations, etc. all come into play. Dillon CPA is the auditor for Sunshine Industries, a manufacturer of widgets. Sunshine's cash flow has cash used in operations of an amount twice that from last year, a net loss and current liabilities exceed current assets by about 25 percent. Company management insists they are spending lots of money investing in new product development and expect to see profits from these new products in the next year. Additionally, according to the CEO of Sunshine Industries, a lawsuit from a former supplier is expected to be settled in the next year. What specific items could Dillon CPA include in an emphasis-ofmatter paragraph