AICPA CPA-Auditing Exam - Topic 1 Question 106 Discussion

Actual exam question for AICPA's CPA-Auditing exam

Question #: 106
Topic #: 1

The adverse effects of events causing an auditor to believe there is substantial doubt about an entity's ability to continue as a going concern would most likely be mitigated by evidence relating to the:

AAbility to expand operations into new product lines in the future.

BFeasibility of plans to purchase leased equipment at less than market value.

CMarketability of assets that management plans to sell.

DCommitted arrangements to convert preferred stock to long-term debt.

Show Suggested Answer

Suggested Answer: D

Choice 'd' is correct. When obtaining an understanding of an entity's internal control in a financial statement audit, an auditor is not obligated to search for significant deficiencies in the operation of internal control.

Choice 'a' is incorrect. In order to determine the nature, timing and extent of tests to be performed, an auditor must determine whether the control activities have been implemented.

Choice 'b' is incorrect. An auditor is required to perform procedures to confirm his/her understanding of the internal control systems' design, and to determine whether relevant controls have been implemented.

Choice 'c' is incorrect. An auditor is required to document his or her understanding of the entity's internal control components, even if he or she intends to use a substantive approach.

by Marti at Jan 26, 2025, 10:11 PM

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Maybelle

3 months ago

Wait, can you really convert preferred stock to debt? Sounds risky!

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Felicitas

3 months ago

A is interesting, but it feels too uncertain for me.

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Tiera

3 months ago

Really? I thought D could also be a game changer.

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Miles

4 months ago

Totally agree with C! Marketability is key for survival.

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Wilson

4 months ago

C seems like the most relevant option here. Selling assets can provide immediate cash flow.

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Mireya

4 months ago

I'm leaning towards the feasibility of purchasing leased equipment since it could show proactive management, but I can't recall if that's the most relevant evidence for going concern.

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Mindy

4 months ago

I practiced a similar question where we looked at operational expansion, but I feel like that might not directly address immediate financial concerns.

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Benton

4 months ago

I think the plans to convert preferred stock to long-term debt might be a strong indicator of financial stability, but I need to double-check if that really mitigates going concern issues.

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Rolf

5 months ago

I remember discussing how evidence of asset marketability could help alleviate doubts about going concern, but I'm not entirely sure if that's the best option here.

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Stefany

5 months ago

This question is testing my understanding of going concern assessments. I'll need to carefully weigh each option and think about which type of evidence would be most relevant and persuasive in addressing substantial doubt.

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Scarlet

5 months ago

I'm confident I know the right answer here. The evidence that would most likely mitigate doubts about an entity's going concern is related to its ability to generate cash and access capital, not its plans for new product lines or equipment purchases.

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Nickie

5 months ago

Okay, I've got this. The key here is to focus on evidence that relates to the entity's ability to generate cash flow and meet its financial obligations. I think option C about the marketability of assets is the best choice.

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Ryan

5 months ago

Hmm, I'm a bit unsure about this one. I'll need to review my notes on going concern assessments and think through the different types of evidence that could address substantial doubt.

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Filiberto

5 months ago

This seems like a tricky question. I'll need to carefully consider the options and think about what evidence would be most relevant to mitigating doubts about an entity's ability to continue as a going concern.

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Yvette

10 months ago

Haha, the correct answer is obviously C. Who buys leased equipment at less than market value these days? That's a real head-scratcher.

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Lashunda

9 months ago

I'm sticking with C. Marketability of assets that management plans to sell seems like the most practical choice.

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Aleisha

9 months ago

I disagree, I believe the answer is A. Ability to expand operations into new product lines shows potential for growth.

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Denae

9 months ago

I think the answer is D. Committed arrangements to convert preferred stock to long-term debt sounds like a solid plan.

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Erinn

10 months ago

Convertible preferred stock to long-term debt (D) could provide some financial flexibility, but it doesn't seem directly related to mitigating going concern doubts.

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Jettie

9 months ago

C) Marketability of assets that management plans to sell.

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Jaime

9 months ago

B) Feasibility of plans to purchase leased equipment at less than market value.

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Victor

9 months ago

A) Ability to expand operations into new product lines in the future.

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Pamella

10 months ago

I disagree. The feasibility of purchasing leased equipment at less than market value (B) seems like an odd one. That wouldn't really address the going concern issue.

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Bobbie

10 months ago

Hmm, I'm not sure about that. Expanding into new product lines (A) could also help improve the entity's financial outlook and viability.

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Georgene

9 months ago

Rosalind: True, having a solid plan in place to address financial issues is crucial.

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Fatima

9 months ago

User 3: Committed arrangements to convert preferred stock to long-term debt (D) could also be a good sign.

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Rosalind

10 months ago

User 2: I agree, having a plan to sell assets could definitely improve the situation.

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Linn

10 months ago

User 1: I think the marketability of assets that management plans to sell (C) could also help.

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Ilona

10 months ago

I think the correct answer is C. The marketability of assets that management plans to sell would be crucial in mitigating the adverse effects of events causing going concern doubts.

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