Which procedure should an auditor perform to support the going concern assessment by examining management's current financial information?

Which procedure should an auditor perform to support the going concern assessment by examining management's current financial information?

• A. Review latest management accounts
• B. Enquiries of directors, company bankers and company solicitors
• C. Review aged receivables analysis
• D. Assess reasonableness of cash flow forecast

Answer: (A)

Assessing going concern relies on evidence about the entity’s near-term ability to operate. The most direct source of this evidence is the latest management accounts, which provide the most up-to-date financial position and performance prepared by management. They show current assets and liabilities, cash balances, working capital needs, and any post‑period developments that could affect liquidity. By reviewing these accounts, you can see indicators such as cash shortfalls, mounting debts, covenant breaches, or reliance on short-term financing, which help form or challenge management’s going concern assessment and disclosures. While other procedures—like querying directors or bankers, examining a narrow area such as aged receivables, or testing the cash flow forecast—can add insight, they don’t replace the value of directly examining the most recent internal financial information that reflects the entity’s current situation.

Assessing going concern relies on evidence about the entity’s near-term ability to operate. The most direct source of this evidence is the latest management accounts, which provide the most up-to-date financial position and performance prepared by management. They show current assets and liabilities, cash balances, working capital needs, and any post‑period developments that could affect liquidity. By reviewing these accounts, you can see indicators such as cash shortfalls, mounting debts, covenant breaches, or reliance on short-term financing, which help form or challenge management’s going concern assessment and disclosures. While other procedures—like querying directors or bankers, examining a narrow area such as aged receivables, or testing the cash flow forecast—can add insight, they don’t replace the value of directly examining the most recent internal financial information that reflects the entity’s current situation.