Superb Professors

Describe what is meant by ‘‘self-fulfilling prophecy’’ and how it might play a role in this scenario. Should the auditor be
concerned with the self-fulfilling prophecy?
3. Perform analytical procedures using Excel to examine the company’s historical financial statements (included in
Appendix A) as well as management’s projections for the next three years. If necessary in your analysis, the FY 2012
statement of income and statement of cash flows have been provided in Appendix A. Further, you can assume that the
company reported the following balances in its balance sheet as of February 2, 2013:
Cash ¼ $44,900
Accounts receivable ¼ $36,140
Inventory ¼ $45,650
Long-term debt ¼ $100,000
Total owners’ equity ¼ $16,990
4. (a) Using the background information as well as the analytical procedures from Requirement 3, identify and discuss the
issues that may raise substantial doubt about the entity’s ability to continue as a going concern for the next 12
months. Be sure to include specific financial information to support your response when applicable.
(b) What mitigating factors are present that may lessen the doubt about the entity’s ability to continue as a going
concern? Identify and discuss the mitigating factors that you observe in this case.
(c) What procedures would you perform to verify the feasibility of management’s plans to obtain a loan from a new
creditor or refinance the loan with an existing creditor?
(d) What audit report recommendation would you make to the audit manager (i.e., should the audit firm include a going
concern explanatory paragraph in the opinion)? Why or why not?

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