ACCA Audit and Assurance (F8) Practice Exam

What is the primary responsibility of auditors regarding the going concern assumption?

1. To ensure the company's profitability

2. To obtain sufficient evidence that going concern is appropriate

3. To conduct a financial analysis of the past five years

4. To make management's assessments on their behalf

The correct answer is: To obtain sufficient evidence that going concern is appropriate

The primary responsibility of auditors regarding the going concern assumption is to obtain sufficient evidence that the going concern basis of accounting is appropriate. This involves evaluating whether the company has the ability to continue its operations for the foreseeable future, typically defined as at least 12 months from the balance sheet date. Auditors assess various factors such as cash flow forecasts, financial performance, and potential events that may impact the company's viability. This requires a comprehensive understanding of the company's financial position and external economic conditions, enabling auditors to adequately determine if the management's use of the going concern assumption is justified. This responsibility is integral to the audit process because the going concern assumption influences how financial statements are prepared and presented. If auditors find that there are significant doubts about the company's ability to continue as a going concern, they may need to adjust their audit opinion accordingly or require that management disclose these uncertainties in the financial statements. The other options, while related to the overall financial health of the company, do not reflect the specific audit responsibility concerning the going concern assumption. Auditors do not guarantee profitability, do not conduct extensive analyses solely of the past five years, and do not make assessments on management's behalf; instead, they evaluate and confirm the appropriateness of management’s assessments and disclosures