Which situation most strongly indicates a need for the auditor to consider a going concern problem?
Correct answer: B. Recurring operating losses and serious cash shortages
- A. A temporary increase in office supplies
- B. Recurring operating losses and serious cash shortages
- C. A change in the entity's logo
- D. A minor difference in stationery costs
Explanation
Recurring losses and severe cash shortages may indicate that the entity cannot meet its obligations or continue normal operations. The other situations are ordinarily too minor to provide such an indicator.
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Auditing examines accounting records and financial statements to determine whether they present a reliable and fairly stated position. The subject covers audit objectives, internal controls, audit evidence, materiality, vouching, verification, working papers, auditor independence, audit reports, and the distinction between an audit and accounting or investigation.
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