Cite reference in the answers

Laura Goodson is a staff-level auditor for Wright & Wright, LLP.The firm specializes in auditing small start-up firms in Silicon Valley.Laura has several clients that she is the "in-charge" auditor on, including NanoTech Corp (NTC) and MicroMedicals (MM), both of which produce technology that can be used in small medical devices such as minorly invasive micro-surgical tools.

During the audit of MM, Laura noted that their Research and Development (R&D) expense had increased significantly compared to prior year.In speaking with management, she noted that the R&D was for a new technology that would allow physicians to implant microscopic monitoring devices that would monitor the patient's healing process, including risk of blood clots, and then safely break-down and absorbed by the body.While Laura did not fully understand how the proteins would react and transmit information to an external monitor for tracking, she did know that this was a huge development in the industry.

A few weeks later, when working on NTC, Laura noticed that NTC had spent a great deal of money on R&D as well.Similar to MM, their main product focused on monitoring a patient's health on a microscopic level. However, NTC's product was not as far along as MM's product. Further, it would have to be removed by a small incision, instead of being absorbed by body. However, it was much more sophisticated in the types of issues it could monitor, which surpassed MM's product with functionality.

Laura knew that MM's product would be revolutionary in the industry, causing reduced demand for similar products, including nearly all of NTC's current and future product lines, and, as MM further developed this new tool, potentially could render competitor products obsolete.

1. In auditing NTC's financial information, how would you evaluate NTC's ability to remain a going concern?

2. As an auditor on both engagements, what public perceptions might Laura face if MM or NTC were to go out of business due to competition from the other?

3. What, if any, obligations does Laura have to the public and/or to each client?

4. If you were Laura, how would you handle knowing this information?What would you do?