Financial Difficulty: The “Going-Concern” Problem

Financial Difficulty: The “Going-Concern” Problem. Pitts Company has experienced significant financial difficulty. Current liabilities exceed current assets by $1 million, cash has decreased to $10,000, the interest on the long-term debt has not been paid, and a customer has brought a lawsuit against Pitts for $500,000 on a product liability claim. Significant questions concerning the going-concern status of the company exist. The lawsuit and information about the going-concern status have been appropriately described in footnote 3 to the financial statements.

Required:

a. Draft AOW’s report, assuming that the auditors decide that an unmodified opinion instead of a disclaimer of opinion is appropriate in the circumstances.

b. Draft AOW’s report, assuming that the auditors decide the uncertainties are so overwhelming that they do not wish to express an opinion on Pitts’ financial statements.

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