ACCA Audit and Assurance (F8) Practice Exam

What type of evidence should be discussed if there is doubt about going concern?

1. Market trends and predictions

2. Cash flow, profit, forecasts, and loan agreements

3. Internal policies and procedures

4. Historical accounting practices

The correct answer is: Cash flow, profit, forecasts, and loan agreements

The type of evidence that should be discussed when there is doubt about going concern primarily revolves around financial data that directly impacts the entity's ability to continue operating in the foreseeable future. Cash flow statements, profit forecasts, and loan agreements provide essential insights into an organization's financial health and cash management. Analyzing cash flow is particularly critical, as it reveals whether the entity can generate enough funds to meet its obligations as they fall due. Profit forecasts are also vital because they offer predictions about future earnings, which are fundamental to assessing ongoing operations. Loan agreements can indicate the company’s reliance on external financing and any covenants that could affect its liquidity position. While market trends and predictions may provide some context, they do not offer specific details about the entity’s financial stability. Internal policies and procedures focus more on governance and compliance rather than financial viability. Historical accounting practices may illustrate past performance but are less relevant for evaluating the future outlook needed for assessing going concern. Therefore, the comprehensive analysis of cash flow, profit forecasts, and loan agreements is the most pertinent and robust evidence in these situations.