The May 2, 2006, edition of The Financial Times carried the following leading story headline:

The related article reported that Sea Containers Ltd., a Bermuda-based container leasing and passenger transport company, remained unable to file its 2005 financial statements with the U.S. Securities and Exchange Commission. The company reported that while it expected to receive an unqualified auditor’s opinion on its 2005 financial report, it also “anticipated that there would be a paragraph (in the auditor’s report) raising substantial doubt about (the company’s) ability to continue as a going concern.” When issuing an audit opinion, an audit firm may note one or more concerns that it has regarding a firm’s reported results or its ability to continue to operate as a going concern. In March of 2006, Sea Containers disclosed to the public that it had violated some of its debt covenants when it wrote off \($500\) million of its leasing business, causing the firm’s net worth to drop below required covenant minimums. Discuss why a violation of an existing debt covenant might cause an auditor to issue a going-concern exception about Sea Containers.

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Auditors to Warn over Sea Containers