New Going Concern Financial Accounting Standard Finance Essay

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March 1, 2020
In the conduct of financial statements audit following PCAOB, it is among the auditor's responsibilities to determine whether there is considerable doubt as to the ability of the company to remain and operate continuously for a specified period, which shall not be longer than one year or twelve months from the date of the financial statements, which are under audit. In the lack of evidence to the contrary, it is a principal presumption that an entity will remain in existence and resume operations indefinitely. The auditor should accomplish this based on his or her knowledge of applicable conditions and events that were already present at or that have happened earlier than the date of the audit report (Edmonds, Leece, and Penner, 2016). Should some instances may cause doubt on the entity's ability to exist continuously in the future, the auditor should first acquire the relevant information with regards to the plans of the management, which are proposed to lessen the effects of such. After this, he or she should evaluate the likelihood that such projects will be executed effectively. Once done with the review of management's plans, the auditor should come up with a conclusion as to whether there is considerable doubt as to the capability of the company to exist uninterruptedly for a certain period, which must not be longer than one year, from the date of the financial statements being audited. In case the auditor verified the existence of considerable doubt, he or she should deliberate the adequacy of disclosure about the inability of the entity to remain in existence for a particular duration of time, as well as a paragraph to explain such, with a proper title, to reflect his findings. Otherwise, if the auditor concludes that there is no considerable doubt, he or she must deliberate adding a disclosure. However, it must be noted that the auditor is not in any way in charge of forecasting upcoming situations or happenings. Hence, the lack of revelation regarding the existence of considerable doubt in the auditor's report shall not be deemed as assuring as to the capacity of the company to exist indefinitely (Jiang, Rupley, & Wu, 2010).
The assumption that the company will remain to exist and operate indefinitely is an essential part of the development of financial statements. Under the assumption of going concern, an entity is deemed to exist and operate unceasingly for the foreseeable future without any intention or need to liquidate. Accordingly, the assets and liabilities should be valued on the foundation that the company will be able to dispose of the assets, settle the obligations, and get refinancing in the normal course of business. In other words, financial statements must be made with the foundation that it will remain in existence indefinitely except when there are substantial uncertainties that may demonstrate the contrary. In the existence of important uncertainty as to the capacity of the company to exist and operate indefinitely, the management should talk about such in their report. Meanwhile, the auditors shall include a paragraph regarding going concern in the Audit Report (Carey, Kortum, and Moroney, 2012).
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