ISA 570, Going concern
Going concern is the assumption that the entity will continue in business for the foreseeable future. Here on MCQs.club we have prepared easy Multiple-Choice Questions (MCQs) on ISA 570, Going concern revised IFAC that fully cover the ISA 570 summary and definition, ISA 570 MCQs with answers, these MCQs are a basis of conclusions. These MCQ on SA 570 are helpful for Competitive exams, Professional Accountancy exams and Business management exams.
- Going concern – is the assumption that the entity will continue in business for the foreseeable future.
- True
- False
- Consideration of the foreseeable future involves making a judgment about future events, which are inherently uncertain.
- True
- False
- Financial statements are prepared on the basis that the reporting entity is a going concern. An entity shall prepare financial statements on a going concern basis, unless management:
- either intends to liquidate the entity or to cease trading
- has no realistic alternative but to do so.
- Both A or B
- None
- Where the assumption is made that the company will cease trading, the financial statements are prepared using:
- the break-up basis
- liquidation basis
- Both A&B
- None
- Under the break-up or liquidation basis:
- The basis of preparation and the reason why the entity is not regarded as a going concern are disclosed.
- Assets are recorded at likely sale values.
- Inventory and receivables may need to be written down as inventory may be sold for a lower price or may be scrapped, and receivables may not pay if they know the company is ceasing to trade.
- All of the above
- Which of the following is correct regarding Director’s responsibilities in respect of going concern?
- To assess the company’s ability to continue as a going concern when they are preparing the financial statements.
- Directors should prepare forecasts to help assess whether they are likely to be able to continue trading for the next 12 months as a minimum.
- Both A&B
- None
- When the directors are performing their assessment, they should take into account a number of relevant factors such as:
- Current and expected profitability
- Debt repayment
- Sources (and potential sources) of financing.
- All of the above
- ISA 570 Going Concern [para 9] states that the auditor shall:
- Obtain sufficient appropriate evidence regarding the appropriateness of management’s use of the going concern basis of accounting in the preparation of the financial statements.
- Conclude on whether a material uncertainty exists about the entity’s ability to continue as a going concern.
- Report in accordance with ISA 570.
- All of the above
- Identify Typical indicators of going concern problems:
- Inability to meet debts as they fall due.
- Significant lack of working capital.
- Inability or insufficient funds to keep up with changes in technology resulting in loss of custom and obsolescence of inventory.
- All of the above
- Audit procedures to assess management’s evaluation of going concern include:
- Evaluate management’s assessment of going concern.
- Assess the same period that management have used in their assessment and if this is less than 12 months, ask management to extend their assessment.
- Consider whether management’s assessment includes all relevant information.
- All of the above
- Audit procedures to perform where there is doubt over going concern include:
- Analyse and discuss the entity’s latest available interim financial statements.
- Read minutes of the meetings of shareholders, the board of directors and important committees for reference to financing difficulties.
- Review events after the year-end to identify those that either mitigate or otherwise affect the entity’s ability to continue as a going concern.
- Obtain written representations from management regarding its plans for the future and how it plans to address the going concern issues.
- All of the above
- Disclosures relating to going concern are required to be made by the directors in circumstances such as:
- Where there is any material uncertainty over the future of a company
- Where the directors have been unable to assess going concern in the usual way (e.g. for less than one year beyond the date on which they sign the financial statements).
- Where the financial statements are prepared on a basis other than the going concern basis, the basis used should be disclosed.
- All of the above
- Which of the following statement is correct?
- The auditor should modify the audit opinion if the directors have not made adequate disclosure of any material uncertainty related to going concern.
- The auditor should modify the auditor’s report without modifying the audit opinion if the directors have appropriately disclosed going concern uncertainties.
- Both A&B
- None
- Auditor shall communicate with those charged with governance about the events or conditions identified that may cast significant doubt on going concern. Such communication shall include:
- Whether events or conditions constitute a material uncertainty
- Whether use of going concern basis is appropriate
- Adequacy of related disclosures in the financial statements
- Implications for the auditor’s report.
- All of the above
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easy to understand
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