Response to Going Concern Paragraph To: Lei Larson, Staff Auditor From: Dale Shackleford, Head Auditor Date: March 22, 20X1 RE: Going Concern Paragraph Lei, After taking a brief glimpse at your draft, it looks great! I plan on going back and looking at the draft more in-depth when I have the time. After that, would you be opposed to meeting with me so that we may discuss the draft further? Let me know what time works best for you! Regards, Dale Going Concern Paragraph To: Dale Shackleford, Head Auditor From: Lei Larson, Staff Auditor Date: March 20, 20X1 RE: Going Concern Paragraph Hey Dale, Thank you for being so welcoming and for getting me started right away! My draft of the Going Concern Paragraph is as follows: The accompanying financial statements have been prepared assuming that JKL Company will continue as a going concern. As discussed in Note X to the audit report, JKL Company has suffered recurring losses from operations and has a net capital deficiency. If these losses continue, there will be some doubt about its ability to continue as a going concern. Management has plans to deal with these issues. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Sincerely, Lei Email To: Lei Larson, Staff Auditor From: Dale Shackleford, Head Auditor Email To: Lei Larson, Staff Auditor From: Dale Shackleford, Head Auditor Date: March 19, 20X1 RE: JKL Audit Assignment Hey Lei, Welcome aboard the audit team! We are very excited to have someone as sharp and as dedicated to their work as you are on our team. I understand that you are a brand new auditor, and do not have much practice planning engagements, conducting tests, or writing reports. Do not worry! We will have you up to speed in no time whatsoever. As your first assignment, I would like you to draft the Going Concern Paragraph for one of our audit clients, JKL Company. After you have completed your draft using proper formatting, send it to me so that I may review your draft. Sincerely, Dale Lei Larson is a new staff auditor completing an assignment for her supervisor, Dale Shackelford. She has drafted the going concern paragraph in the exhibits, which is intended to be added just before the opinion paragraph to the audit report of JKL Company about going-concern issues. Dale, an experienced auditor, has made comments about the draft. Consider the information provided in the exhibits, and indicate whether Lei's work product is correct, Dale's comment is correct, or neither Lei's work product nor Dale's comment is correct. A choice may be used once, more than once, or not at all. Dale's comment Lei's work product is correct Dale's comment is correct Neither Lei's work product nor Dale's comment is correct 0 0 0 0 0 1. The paragraph should be placed after the opinion paragraph of the auditor's report. 2. Change "Note X to the audit report" to "the management representation letter." 3. The phrase "If these losses continue" should not be included. 4. The phrase "some doubt" should be replaced with "substantial doubt." 5. The phrase "continue as a going concern" should be replaced with the phrase "remain profitable." 6. No reference to management's plans should be included in the paragraph. 7. The phrase "include any adjustments that might result" should be replaced with "contain any errors that might result." 8. The paragraph should include a sentence that management has agreed that there is a going-concern issue. 0 0 0 0 0 0 0 0
