Case 12

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Topics: Debt
Case 12.4 1. Mark can ask George for his plans on continuing the company for over a year. The plans must be shared in the form of a financial statement and assuming the plans are adequate, Mark can provide feedback through notes on the mitigating factors. If the disclosed information does not meet the criteria Mark was looking for, then he should ask George to provide the notes for the shared financial statements which identify the doubts that he has about the growing concern assumption. Assuming the disclosures are sufficed, George is entitled to give unqualified feedback and ensure to specify notes on the financial statement. If George neglects to efficiently disclose information in the financial statement, then Mark must provide qualified or adverse feedback. Whether it’s a qualified or adverse opinion depends on the conclusion of the additional procedures that were committed by Mark as her evaluated the evidence related to the concerning assumptions. 2. A “Self-fulfilling” prophecy occurs when the banks neglect to give loans to George because of doubt in the continuity of the business. The creditors would not provide the standard credit and ultimately demanded cash on delivery. Consumers are doubtful about buying goods from George because they have no faith in his returns policy. The result of these events would lead to George closing his business due to the adverse effect of the concern assumption mentioned in the financial statements. The going concern assumption mentioned in the financial statements would ensure that George’s business closes down. 3. An accounting firm that files an unqualified report and a complaint is made because of the fact; the accountant is potentially at risk for civil and criminal penalties. The company, partners included, will be subject to termination and possibly jail sentences. The penalties can be so outstanding that the firm is not able to cover them and they eventually bankrupt. 4. Most importantly,

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