When a Question Arises About an Entity's Continued Existence, the Auditor

question 17

Multiple Choice

When a question arises about an entity's continued existence, the auditor should consider factors tending to mitigate the significance of negative information concerning the entity's means for maintaining adequate cash flow. An example of such a factor is the:

• A)possibility of purchasing certain assets rather than leasing them.
• B)capability of extending the due dates of existing debt.
• C)appropriateness of changing depreciation methods from double declining balance to straight line.
• D)marketability of property and equipment that management plans to keep.

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Definitions:

Variable Costs

Expenses that change in direct proportion to the amount of production or output.

Total Cost

The sum of all costs incurred by a business in the production of goods or services, including fixed and variable costs.

Prospective Sales

Forecasted or anticipated sales based on current trends, marketing strategies, and economic conditions.

Economies of Scale

Cost advantages reaped by companies when production becomes efficient, as the cost per unit of output decreases with increasing scale.