You are the audit partner for Yogis Inc., a privately owned company that specializes in unique and fashionable yogawear. Over the years, the company has been quite successful; however, recently it has run into problems with supplier quality and, as a result, demand has declined. After reviewing all the evidence and management's future plans and its assessment of Yogis' ability to continue as a going concern, you are not comfortable with the company not including a going concern note in the financial statements. While management is quite confident that they will realize their forecasted sales, you conclude there is too much uncertainty regarding their predictions.

You have just met the CEO and CFO to discuss the issue. You have never had any disputes with the client in the past regarding adjustments and are somewhat taken aback by their response. Both are strongly opposed to any disclosure. The CEO stated: "It is just as well that you shut us down now, who is going to lend us money and how are we going to maintain credit with our suppliers if we are saying there is substantial doubt about our ability to continue as a going concern?" After leaving the meeting, you reflect on the CEO's concerns and you conclude his arguments have merit. However, it does not help resolve your problem regarding the disclosure over going concern.

REQUIRED

1. Explain what are management's responsibilities regarding the going concern assumption.

2. Explain what are the auditor's responsibilities regarding auditing the going concern assumption.

3. Based upon your understanding of the case facts, what are the partner's choice regarding the type of audit report.

4. Using the ethical decision framework from Chapter 4 , develop your recommendation on how the partner should resolve his dilemma.