Palpet, the client, is a small manufacturing company currently in need of cash in order to stay in business. Loan payments exceeding its cash on hand are due in 60 days and if Palpet defaults, its bank says it will foreclose on the assets used as collateral. Palpet's only recourse then would be to file bankruptcy. One solution is to seek outside financing from vendors eager to keep Palpet in business, although the availability of financing will not be known until the next fiscal year. The auditor should: Select one: O a. withhold the audit report until financing has been secured. O b. audit the financial statements and disclose the possibility that Palpet may not be able to continue as a going concern. O c. disclaim an opinion on the financial statements. O d. ignore the issue as it does not affect the current year under audit
Palpet, the client, is a small manufacturing company currently in need of cash in order to stay in business. Loan payments exceeding its cash on hand are due in 60 days and if Palpet defaults, its bank says it will foreclose on the assets used as collateral. Palpet's only recourse then would be to file bankruptcy. One solution is to seek outside financing from vendors eager to keep Palpet in business, although the availability of financing will not be known until the next fiscal year. The auditor should: Select one: O a. withhold the audit report until financing has been secured. O b. audit the financial statements and disclose the possibility that Palpet may not be able to continue as a going concern. O c. disclaim an opinion on the financial statements. O d. ignore the issue as it does not affect the current year under audit
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Palpet, the client, is a small manufacturing
company currently in need of cash in order to stay
in business. Loan payments exceeding its cash
on hand are due in 60 days and if Palpet defaults,
its bank says it will foreclose on the assets used
as collateral. Palpet's only recourse then would
be to file bankruptcy. One solution is to seek
outside financing from vendors eager to keep
Palpet in business, although the availability of
financing will not be known until the next fiscal
year. The auditor should:
Select one:
O a. withhold the audit report until financing has
been secured.
O b. audit the financial statements and disclose
the possibility that Palpet may not be able to
continue as a going concern.
O c. disclaim an opinion on the financial
statements.
O d. ignore the issue as it does not affect the
current year under audit
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