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AICPA CPA-Auditing Exam - Topic 1 Question 106 Discussion

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:
D) Committed arrangements to convert preferred stock to long-term debt.
A) Ability to expand operations into new product lines in the future.
B) Feasibility of plans to purchase leased equipment at less than market value.
C) Marketability of assets that management plans to sell.

AICPA CPA-Auditing Exam - Topic 1 Question 106 Discussion

Actual exam question for AICPA's CPA-Auditing exam
Question #: 106
Topic #: 1
[All CPA-Auditing Questions]

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:

Show Suggested Answer Hide 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
7 months ago
Wait, can you really convert preferred stock to debt? Sounds risky!
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Felicitas
8 months ago
A is interesting, but it feels too uncertain for me.
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Tiera
8 months ago
Really? I thought D could also be a game changer.
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Miles
8 months ago
Totally agree with C! Marketability is key for survival.
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Wilson
8 months ago
C seems like the most relevant option here. Selling assets can provide immediate cash flow.
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Mireya
9 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
9 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
9 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
9 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
9 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
9 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
9 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
9 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
9 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
1 year 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
1 year 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
1 year 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
1 year 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
1 year 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
1 year ago
C) Marketability of assets that management plans to sell.
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Jaime
1 year ago
B) Feasibility of plans to purchase leased equipment at less than market value.
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Victor
1 year ago
A) Ability to expand operations into new product lines in the future.
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Pamella
1 year 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
1 year 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
1 year ago
Rosalind: True, having a solid plan in place to address financial issues is crucial.
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Fatima
1 year 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
1 year ago
User 2: I agree, having a plan to sell assets could definitely improve the situation.
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Linn
1 year ago
User 1: I think the marketability of assets that management plans to sell (C) could also help.
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Ilona
1 year 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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Jina
1 year ago
I think it could also be D, the committed arrangements to convert preferred stock.
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Jina
1 year ago
I agree, the marketability of assets is key in this situation.
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Alysa
1 year ago
I'm not sure about that. I think D) Committed arrangements to convert preferred stock to long-term debt could also help in this situation.
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Susana
1 year ago
I agree with Vi. If the assets can be sold easily, it would help mitigate the adverse effects.
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Vi
1 year ago
I think the answer is C) Marketability of assets that management plans to sell.
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