Reference no: EM132630115

Question - Assume that you are the audit partner on an engagement for a client that has had a string of operating losses. You know the CFO, who is a former audit manager of your firm. The company still has a positive net worth, but you are worried that the company might have to close down within the next year or so. When you tell the CFO that the company should make full disclosure in the notes concerning substantial doubt about the company's ability to continue as a going concern, your colleague says, "Hogwash! There's no substantial doubt. The probability of our having to close down is remote. We'll make no such disclosure. To do so would only make our customers and creditors nervous, possibly making such a disclosure a self-fulfilling prophecy. Our competitors are as bad off as we are, and their auditors aren't making them send out a distress signal." You agree that the determination of "substantial doubt" is a judgment call.

Apply the five-step Conceptual Framework for Members in Public Practice to this dilemma.

Here are 5 steps:

1. Identify Threats: Explain.

2. Evaluate Significance: Explain.

3. Identify and apply safeguards: Explain.

4. Evaluate the Effectiveness of Safeguards: Explain.

5. Document Threats and Safeguards: Explain.