In evaluating a going-concern issue, which mitigating plan would a auditor consider?

• A. Make the credit terms for sales on account more lenient.
• B. Strengthen internal controls over cash disbursements.
• C. Purchase the production facilities currently being leased from a related party.
• D. Postpone those expenditures for research and development projects.

Answer: (D)

When evaluating a going-concern issue, the auditor looks for management’s plans that could mitigate the adverse conditions and make continuation of operations more likely. The key is whether these plans are feasible, likely to be implemented, and capable of improving liquidity or solvency in the near term.

Postponing discretionary expenditures like research and development is a classic mitigating step because it directly reduces cash outflows without harming essential operations. By delaying nonessential projects, the company can conserve cash, extend its runway, and lower the risk of running out of funds. This kind of cash-conservation measure is precisely the type of management action an auditor will consider as a potential mitigating plan.

In contrast, making credit terms for sales more lenient would actually worsen cash inflows and liquidity, strengthening internal controls over cash disbursements is a control improvement rather than a plan aimed at addressing the going-concern issue, and purchasing production facilities from a related party would require more cash and commitments, not alleviate the liquidity problem.