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).
The administration is accountable for assessing if there are some conditions or events which may indicate an important doubt on the ability of the company to exist and operate continuously within twelve months or one whole year subsequent to the issuance of the financial statements, or the date when it becomes available for publication. In their assessment as to the applicability of the principle of going concern, the management shall take into consideration all information that is readily available as of the moment about the future, or at least one year from the date when the financial statements have been issued. The degree of assessment may vary from one entity to another. For those with a history of profitable transactions and readily obtainable financial resources, a conclusion that the going concern principle is still applicable may be arrived at with no thorough analysis necessary. However, in other companies, management may have to examine a broad series of factors. In case the administration is aware of significant uncertainties with regards to the ability of the entity to go on indefinitely in the future, such fact should be communicated. It must be specified that the financial statements were not developed on the basis of the principle of going concern, together with the actual basis used and the corresponding reasons for them to conclude that the entity may no longer exist and operate indefinitely.
Meanwhile, among the auditor's duties in the conduct of the audit of company financial statements is the evaluation of whether the preparation of the financial statements on the basis of the going concern principle is still suitable in their current state. This should be kept in mind not only during the planning stage and during the performance of their audit procedures, but also in the assessment of the results (Hahn, 2011). The auditor must deliberate the applicability of this principle even though the framework of financial reporting that was used as a basis in the development of the financial statements does not specifically demand the management to evaluate the ability of the entity to remain and operate continuously and indefinitely. Auditors are obliged to bear in mind this principle as early as the planning stage of the audit through the determination if there are conditions and events that were already present, which may impair the ability of the company to continue existing and operating in the future. They are also obliged to stay alert and attentive in the course of the audit for any evidence as to this effect. In case the auditors have identified events or conditions that may raise important uncertainty as to the ability of the company to go on indefinitely, they are mandated to a...