Surfer Dude
What are Mark’s options?
The first option available to Mark is to withdraw as the partner in charge of the audit if he feels his objectivity is in any way compromised. If he feels unsure about his ability to make a judgment with complete objectivity and professionalism, he could withdraw from the audit and allow another partner to deal with Surfer Dude and issue the appropriate audit report.
Another possibility for Mark is to not include a going-concern paragraph in the audit report with the hope that it would allow Surfer Dude the opportunity to improve their worsening financial condition. This option would satisfy Mark’s desire to help Surfer Dude by not causing them any possible further damage. But by doing so, Mark may be compromising his duty to the public whose interests he is obligated to protect. Such actions could lead to serious negative consequences for the public, for the profession, for Mark’s firm, and for Mark himself if Surfer Dude ultimately fails.
A third option available to Mark is to include a going-concern explanatory paragraph in the audit report. He would do so at the risk of losing his friendship and future business relationship with George and Surfer Dude. In addition, Mark knows that the issuance of a going-concern report modification could further limit the likelihood of Surfer Dude overcoming their financial difficulties.
It may be possible for Mark to delay issuing an opinion on the audited financial statements for a few weeks until further information is available as to whether Surfer Dude will be successful in obtaining new financing or resolving in some other way the substantial doubt about the entity’s ability to continue in existence during the coming year. This is clearly not a permanent resolution, but may provide time for some of the doubts to be resolved one way or the other.
How might a going-concern explanatory paragraph become a “self-fulfilling prophecy” for
Surfer Dude?
George Baldwin’s
The first option available to Mark is to withdraw as the partner in charge of the audit if he feels his objectivity is in any way compromised. If he feels unsure about his ability to make a judgment with complete objectivity and professionalism, he could withdraw from the audit and allow another partner to deal with Surfer Dude and issue the appropriate audit report.
Another possibility for Mark is to not include a going-concern paragraph in the audit report with the hope that it would allow Surfer Dude the opportunity to improve their worsening financial condition. This option would satisfy Mark’s desire to help Surfer Dude by not causing them any possible further damage. But by doing so, Mark may be compromising his duty to the public whose interests he is obligated to protect. Such actions could lead to serious negative consequences for the public, for the profession, for Mark’s firm, and for Mark himself if Surfer Dude ultimately fails.
A third option available to Mark is to include a going-concern explanatory paragraph in the audit report. He would do so at the risk of losing his friendship and future business relationship with George and Surfer Dude. In addition, Mark knows that the issuance of a going-concern report modification could further limit the likelihood of Surfer Dude overcoming their financial difficulties.
It may be possible for Mark to delay issuing an opinion on the audited financial statements for a few weeks until further information is available as to whether Surfer Dude will be successful in obtaining new financing or resolving in some other way the substantial doubt about the entity’s ability to continue in existence during the coming year. This is clearly not a permanent resolution, but may provide time for some of the doubts to be resolved one way or the other.
How might a going-concern explanatory paragraph become a “self-fulfilling prophecy” for
Surfer Dude?
George Baldwin’s