Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

How should auditors react if they encounter a significant doubt about a client's ability to continue as a going concern?

1. Express an unmodified opinion.

2. Include an emphasis of matter paragraph.

3. Withdraw from the engagement.

4. Ignore it if it was not addressed in management report.

The correct answer is: Include an emphasis of matter paragraph.

When auditors encounter significant doubt about a client's ability to continue as a going concern, it is essential to appropriately communicate this uncertainty to users of the financial statements. Including an emphasis of matter paragraph in the audit report serves this purpose effectively. This paragraph draws the reader's attention to the explanatory notes in the financial statements that discuss the going concern issue, thereby ensuring transparency about the potential risks and uncertainties related to the entity's ability to operate in the foreseeable future. The emphasis of matter paragraph does not alter the overall opinion on the financial statements but highlights critical information that users should be aware of. This approach aligns with the auditor's responsibility to provide a fair presentation of the financial statements while also addressing significant uncertainties that could affect the entity's operations. In contrast, expressing an unmodified opinion would imply that there are no significant issues affecting the client's ability to continue as a going concern, which would be misleading in this context. Withdrawing from the engagement would be an extreme response and not typically warranted unless the situation would lead to breach of independence or ethical standards. Additionally, ignoring the matter simply because it was not addressed in the management report neglects the auditor's responsibility to assess and reflect any significant concerns regarding going concern in their audit report. Therefore, highlighting the issue through