What are Scott’s options?
What will be an ideal response?
The first option available to Scott 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 Scott 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 Scott’s desire to help Surfer Dude by not causing them any possible further damage.
But by doing so, Scott 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
Scott’s firm, and for Scott himself if Surfer Dude ultimately fails.
A third option available to Scott 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, Scott 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 Scott 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.
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