Ability To Continue As Going Concern Practice Test

You are the auditor of a nonissuer manufacturing company in an audit of financial statements. The company has recurring operating losses, a $1.8$ current ratio decline to $0.7$, and a $12-month cash flow forecast showing a $3.5$ million shortfall; $60%$ of debt ($4.0$ million) matures in the next 9 months and the entity is currently in technical covenant violation with a waiver that expires in 60 days. Management plans to obtain a new revolving credit facility but has only initiated preliminary discussions with one lender and has no term sheet. What is the most appropriate action for the auditor to take regarding the going concern assessment?

You are performing an audit of a nonissuer entity. Conditions and events (recurring losses, negative operating cash flows, and imminent debt maturities) indicate substantial doubt about the entity’s ability to continue as a going concern, and management’s plans are not likely to alleviate the doubt. Management includes a note disclosure describing the conditions but refuses to disclose that its mitigation plan is unlikely to be successful. What is the most appropriate action for the auditor to take regarding the going concern assessment?