Waveland South, a private company, is a new audit client for 2022. Waveland’s financial statements for 2021 were audited by the previous auditor. An unmodified audit opinion with an emphasis-of-matter paragraph was included in the previous auditor’s report because of a going concern issue. The issue identified by the previous auditor was that a material amount of debt, which Waveland could not pay, was coming due in the next year. Waveland was in negotiations with Gulf State Bank, but the bank was not willing to modify or extend the existing financing. Waveland took no other action to secure financing from other lenders. In the 2021 financial statements, Waveland did not disclose any information about the debt situation.

Required

Debate whether the opinion in the previous year’s audit report was appropriate. If you disagree with the type of report issued by the previous auditors, what type of report do you think should have been issued and why?