AICPA Exam CPA-Auditing Topic 1 Question 106 Discussion

Actual exam question for AICPA's CPA-Auditing exam

Question #: 106
Topic #: 1

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:

AAbility to expand operations into new product lines in the future.

BFeasibility of plans to purchase leased equipment at less than market value.

CMarketability of assets that management plans to sell.

DCommitted arrangements to convert preferred stock to long-term debt.

Show Suggested 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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Yvette

1 months 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

23 days 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 months 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 months 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

2 months 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

14 days ago

C) Marketability of assets that management plans to sell.

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Jaime

18 days ago

B) Feasibility of plans to purchase leased equipment at less than market value.

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Victor

1 months ago

A) Ability to expand operations into new product lines in the future.

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Pamella

2 months 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

2 months 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

29 days ago

Rosalind: True, having a solid plan in place to address financial issues is crucial.

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Fatima

1 months 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

2 months ago

User 2: I agree, having a plan to sell assets could definitely improve the situation.

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Linn

2 months ago

User 1: I think the marketability of assets that management plans to sell (C) could also help.

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Ilona

2 months 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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