Which of the following conditions or events most likely would cause an auditor?

Answer : C

Explanation:
Choice "C" is correct. Leasing rather than purchasing operating facilities results in reduced (or at least delayed) expenditures, which is a mitigating factor in a going concern situation.
Choice "A" is incorrect. Mitigating factors in a going concern situation include plans to dispose of assets, plans to borrow money or restructure debt, plans to reduce or delay expenditures, or plans to increase ownership equity. Repurchasing stock is an outflow of cash that would reduce ownership equity; as such, it is not a mitigating factor.
Choice "B" is incorrect. Mitigating factors in a going concern situation include plans to dispose of assets, plans to borrow money or restructure debt, plans to reduce or delay expenditures, or plans to increase ownership equity. Issuing stock options does not fall into any of these categories and would not be considered a mitigating factor.
Choice "D" is incorrect. Mitigating factors in a going concern situation include plans to dispose of assets, plans to borrow money or restructure debt, plans to reduce or delay expenditures, or plans to increase ownership equity. Accelerating the due date of an existing mortgage would increase expenditures, and therefore would not be a mitigating factor.

Which of the following conditions or events most likely would cause an auditor to

have substantial doubt about an entity's ability to continue as a going concern?

A. Cash flows from operating activities are negative.

B. Research and development projects are postponed.

C. Significant related party transactions are pervasive.

D. Stock dividends replace annual cash dividends.

Correct Answer: A

Section: Auditing and Attestation Explanation

Explanation/Reference:

Explanation:

Choice "a" is correct. Negative cash flows from operating activities most likely

would cause an auditor to have substantial doubt about an entity's ability to

continue as a going concern.

Choices "b" and "d" are incorrect. Plans to reduce or delay cash expenditures are

mitigating factors conserving cash (e.g., postponing R&D projects and replacing

cash dividends with stock dividends). This would not ordinarily cause an auditor

to have substantial doubt about an entity's ability to continue as a going concern.

Choice "c" is incorrect. The existence of significant related party transactions should

be disclosed but would not ordinarily cause an auditor to have substantial doubt

about an entity's ability to continue as a going concern.

An auditor reads the letter of transmittal accompanying a county's comprehensive

annual financial report and identifies a material inconsistency with the financial

statements. The auditor determines that the financial statements do not require

revision. Which of the following actions should the auditor take?

A. Request that the client revise the letter of transmittal.

B. Include an explanatory paragraph in the auditor's report.

C. Consider withdrawing from the engagement.

D. Request a client representation letter acknowledging the inconsistency.

Correct Answer: A

Which of the following conditions or events most likely cause an auditor to have substantial doubt about the entity's ability to continue as a going concern?

Which of the following circumstances is most likely to cause an auditor?

Which of the following factors most likely would cause an auditor to decline?

Which of the following factors would most likely cause an auditor not to accept a new client engagement?