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 Scott convince George that a going-concern report is in the best interests of all parties involved?

Question

What will be an ideal response?

Answer 1

The auditor’s primary duty is to report accurately and fully to the public. Independent auditors must
always act to protect the best interests of the public. The value of the auditing profession is grounded on
the public’s trust that the auditor is reporting honestly and objectively. When auditors fail to meet this
expectation, the public’s trust in them is damaged and the value of the audit is undermined.
To convince George that a going-concern opinion is the best option for all parties, Scott must help
him see the possible negative results as well as the potential benefits to George’s company. On the surface,
George believes that the absence of a going-concern explanatory paragraph would allow Surfer Dude the
opportunity to recover from their financial difficulties. But in reality, by not issuing such an opinion they
could face much more serious consequences. Surfer Dude also has an obligation to accurately report their
financial condition to the public and its stakeholders. Failing to do so could expose George and his company
to a greater amount of potential liability from potential lawsuits from the company’s stakeholders. It is
true that a going-concern report modification will publicly highlight the difficulties that Surfer Dude is
experiencing and, therefore, make other business transactions more difficult. However, the consequences
of not reporting fully and completely are potentially much more negative than those associated with not
disclosing the going-concern issue. Scott must help George realize that full disclosure to the company’s
stakeholders is in his and his company’s best interest.