When an Auditor of Financial Statements Has Substantial Doubt About

question 22

Multiple Choice

When an auditor of financial statements has substantial doubt about an entity's ability to continue as a going concern, the auditor most likely would express a qualified opinion if:

• A) The effects of the adverse financial conditions are likely to be negative.
• B) Information about the entity's ability to continue as a going concern is not disclosed in the financial statements.
• C) Management has no plans to reduce or delay future expenditures.
• D) Negative trends and recurring operating losses appear to be irreversible.

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Definitions:

Accounting

The systematic process of recording, analyzing, and reporting financial transactions of a business.

Tax Point

The specific time at which a taxable event occurs, determining the tax consequences for the individual or entity involved.

Shareholder Approval

The consent given by shareholders, usually through voting, for corporate actions such as mergers, acquisitions, or issuing new shares.

Merger

The combination of two or more companies into a single entity, either by closing the old entities into one new entity or by one company absorbing the others.