When should an auditor modify the opinion due to going concern?

When should an auditor modify the opinion due to going concern?

• A. Only if there is cash shortage at year-end.
• B. Only for non-public entities.
• C. If substantial doubt exists about the entity's ability to continue as a going concern for at least 12 months.
• D. Only if there is a clear fraud.

Answer: (C)

The key idea is evaluating whether the entity can continue operating for at least 12 months after the reporting date. If there is substantial doubt about the entity’s ability to do so, and management’s plans to mitigate that doubt don’t remove it, the auditor is required to modify the opinion to reflect the going-concern issue. This threshold—substantial doubt for a 12-month horizon—is what triggers the change, not a cash shortage alone, not whether the entity is public or private, and not related to fraud. When such doubt exists, the auditor considers management’s plans and the effectiveness of those plans; if the doubt remains unresolved, a going-concern modification is appropriate, sometimes accompanied by an emphasis-of-matter paragraph if disclosures are adequate.

The key idea is evaluating whether the entity can continue operating for at least 12 months after the reporting date. If there is substantial doubt about the entity’s ability to do so, and management’s plans to mitigate that doubt don’t remove it, the auditor is required to modify the opinion to reflect the going-concern issue. This threshold—substantial doubt for a 12-month horizon—is what triggers the change, not a cash shortage alone, not whether the entity is public or private, and not related to fraud. When such doubt exists, the auditor considers management’s plans and the effectiveness of those plans; if the doubt remains unresolved, a going-concern modification is appropriate, sometimes accompanied by an emphasis-of-matter paragraph if disclosures are adequate.