Carter Manufacturing Company makes a variety of consumer products. For the year just ended (and the two prior years), sales of private-label product to Mega-Mart ( 1,200 stores nationwide) have made up 60 to 65 percent of total sales. On December 31 of the year just ended, Mega-Mart informed Carter that it would be buying all private-label products from another manufacturer under a five-year contract. Losing this business will result in a 50 to 55 percent reduction in total gross profit for Carter.

a. What is the going concern concept and how does it apply to this situation?

b. How should the full disclosure principle be applied when preparing the annual report for the year just ended?

c. What is the independent auditor's responsibility in this situation?