MAA303 Auditing; Case Study Accounting, Finance, SPSS Case Study (Case Study Sample)

MAA303 Auditing
Trimester 1, 2019
Assessment 2, Part B– Case study
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The Going Concern Assumption
According to AASB 101, a company is considered a going concern when according to an audit review is assumed to have the capacity to pay its debts when and as they fall due, and when it can carry on operations without any intention or obligation to wind up, liquidate or enter into bankruptcy for at least the next 12 months (ASA, 570). From an accounting perspective, this is an accounting principle that guides preparation of financial statements. That is why companies recognize depreciation or prepaid and accrued expenses because the assumption is that operations will continue in the future (Carson, Fargher & Zhang, 2016).
Entities in their audit reports are now required to give an entities’ going concern status and auditors are expected to obtain sufficient and suitable audit evidence for review (Sánchez-Medina, Blázquez-Santana & Alonso, 2019). The going concern status of a business can be threatened by risks such as expiry of a large contract which may not be renewed in the next financial year, when a grant comes to an end leaving a gap in research funding or even launch of rival technology. A new technology by a rival could overtake the company’s products dominance in the market or bring down its intellectual property value making it hard to get any new contracts. The going concern of the business becomes tenuous. The board assesses the scenarios as indicated in different financial notes as well as tests management assumptions behind them to establish if the organization has an alternative strategy to make a turnaround.