ACCT 475 Lecture Notes - Lecture 6: Learning Curve, Kpmg, Bombay Company
16 Jan 2018
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Auditor must consider whether it is appropriate to assume that client will remain a going concern (cas 570: going concern means belief that company will remain in business for foreseeable future. Remaining a going concern is the responsibility of client governance. Auditor must obtain sufficient appropriate evidence to assess validity of going concern assumption. Auditor makes professional judgement about going concern risk, based on risk indicators: auditors need to validate and evaluate the risk indicators need to be proactive with management (gaap departure) Examples: significant debt/equity ratio debt is very large, can lead to default and insolvency. Future existence is in doubt long term loans coming due. Page 1: prolonged losses goodwill write-downs, r&d, etc. can be good, but recurring losses are not. Mitigating factor owner always pumps capital into the company even though the company has losses every year: massive litigation tabaco companies were subject to millions of dollars, but these companies are still alive today.
