Surfer Dude Dudes, Inc.

Case 12.4, Surfer Dude Dudes, Inc.

1. What are Mark’s options?

Marks only option was to try and convince George about the financial position of the concern. He needs to explain to George the consequences of not including the explanatory paragraph in the report. He should also probably predict the future position of Surfer Dude given the present economic conditions and try to explain to George the reasons why the company may not be able to recover in the consequent year for which the going-concern explanatory report becomes necessary.

2. How might a going-concern explanatory become a “self-fulfilling prophecy” for Surfer Dude?

The going-concern explanatory paragraph in the report becomes a self-fulfilling prophecy to Surfer Dude as the various classes of people involved with the company that is the creditors, customers, investors, etc., all their hopes and plans will be shattered and the company will lose its business for eternity. There would be no one willing to lend money, no one willing to sell stock to the company and no one will trust the company.

3. What potential implications arise for the accounting firm if they issue an unqualified report without the going-concern explanatory paragraph?

It would be unethical to issue an unqualified report without the going concern report. This is because every audit report must consist of the reasons for the unqualified report. An unqualified report is a clean bill of health of the organization and an auditor must not exclude any information or insert any irrelevant information in this report. Every unqualified report has a structure which consists of three parts that is introductory paragraph, scope paragraph and opinion paragraph therefore it is necessary that the auditor fills in all the necessary information.

4. Discuss the importance of full and accurate auditor reporting to the public, and describe possible consequences for both parties if the going-concern explanatory paragraph...