Case12.4 Considering the Going-Concern Assumption

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Mark has several options as auditor for Surfer Dude, Inc. Substantial doubt will result in an unqualified audit opinion. An explanatory paragraph regarding the uncertainties is explained to reveal the auditors conclusion. "If the auditor concludes that the entity’s disclosures with respect to the entity’s ability to continue as a going concern are inadequate, a departure from generally accepted accounting principles exists." (Boynton & Johnsonp.907) Mark may also state an adverse opinion to reflect a departure from GAAP, or he could disengage himself from the audit. A going concern explanatory paragraph may cause a “self-fulfilling prophecy” for Surfer Dude, Inc. Mr. Baldwin’s concerns regarding a going concern report are for the future of the company. He believes, as most management, that substantial doubt of going concern would be the start of failure for the company. Baldwin is concerned with the company’s ability to obtain loans or order supplies on account if a doubt for going concern is presented in the audit report. The reputation of the company is also at risk when the going concern is in doubt. Substantial doubt regarding a company’s ability to continue as a going concern is prevalent to the financial statements. The auditor can be reprimanded for excluding an explanatory paragraph. The principles of ethical conduct of auditors would be compromised if the auditor is not compliant with reporting standards. The integrity and concern for the public interest would be violated. The friendship between Mark and George compromises Mark’s objectivity in the audit. Mark must maintain the public interests and remain unbiased in the decision process regarding the audit and the substantial doubt of going concern. Auditors are obligated to report opinions that will serve the best interests of the public, honor public trust, and reflect

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