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Surfer Dude Duds, Inc

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1. What are Mark's options?

Mark has several options. First, he can demand from George that he disclose plans of how he will continue the company for more than a year. The plans should be disclosed adequately in the financial statement and if the plans are adequate, Mark can express an unqualified opinion with a note drawing the attention to the mitigating factors.
Second, if the going concern issue is not resolved to the satisfaction of Mark then he should ask George to give a note in the financial statements that discloses the matters that raise doubts about the going concern assumption. If the disclosures are adequate, then George should give an unqualified opinion but should add a paragraph that draws attention to the note in the financial statements.
Third, if George refuses to make an adequate disclosure in the financial statement, Mark has to express either a qualified or an adverse opinion. Whether it will be a qualified opinion or an adverse opinion will depend on the results of additional procedures carried out by Mark to examine the evidence relating to going concern assumptions.

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

A going concern explanatory paragraph may become a "self-fulfilling" prophesy because of several reasons. First, the banks would not give loans to George if they doubted the continuity of his business. Second, the creditors would not give him the customary credit and insist on ...

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See Also This Related BrainMass Solution

Case 12-4 Surfer Dude Duds: Consider the Going-Concern Assumption


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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