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Surfer Dude Duds

PLEASE SEE ATTACHMENT FOR FULL CASE 12-4 Pgs. 385-387

1. What are Mark's options?
2. How might a going-concern explanatory paragraph become a "self-fulfilling prophecy" for Surfer Dude?
3. What potential implications arise for the accounting firm if they issue an unqualified report without the going-concern explanatroy paragraph?
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 and footnote are excluded. How might Mark convince George that a going-concern report is in the best interests of all parties involved?
5. How appropriate is it for an audit partner to have a friendly personal relationship with a client?
6. What factors should motivate Mark to be objective in his decision, despite his personal concern for his friend?
7. In your opinion, what shoud Mark do?

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Case 12-4 Considering the Going-Concern Assumption

1. What are Mark's options?
Mark has two options, either he gives an unqualified report, or he gives an unqualified modified opinion and includes in his report a going concern disclosure.

2. How might a going-concern explanatory paragraph become a "self-fulfilling prophecy" for Surfer Dude?
There are several actions that follow a going concern disclosure. The credit agencies downgrade the company, the lending banks recall loans and do not extend credit to a company that has got a going concern disclosure in its audit report, and investors sell the stocks of such companies. According to George if the going concern disclosure is made in the audit report, nobody will be willing to loan Surfer Dude any money, no supplier will be willing to sell any supplies on account and the customers will doubt the ability of Surfer Dude to back its returns policy. In other words, the going concern disclosure will impair Surfer Dude's ability to continue in business. The self-fulfilling prophesy is that the fact that the auditor includes a going concern disclosure makes it impossible for Surfer Dude to continue as a going concern. The going concern disclosure will sound the death-knell of Surfer Dude.

3. What potential implications arise for the accounting firm if they issue an ...

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