Discuss the negative consequences that arise when auditors fail to identify and report going-concern problems.

Consequences arising when auditors fail to identify and report on going-concern problems:

1. The purpose of the audit is defeated.

2. Credibility in the audit process and opinion is eroded.

3. Confidence in the efficiency of market information is shattered.

4. Investors and the general public are misinformed and misled.

5. More governmental oversight and regulations will be required.

6. The auditors involved may have their licenses withdrawn and the audit firm could be closed like Arthur Andersen.

Explanation:

For instance, Company A's auditors are always expected to identify and report on going-concern issues of the company.  Failure to identify and report on problems affecting going-concern means that Company A could be at the risk of liquidation and auditors still report it as if it were continuing in business for the next foreseeable future.   That means that Company A's assets and liabilities are reported in the Balance Sheet as if the business could continue indefinitely, whereas the assets and liabilities should have been reported on a sale-out basis.

The auditors involved in making the wrong conclusion about Company A will be sued with huge damages  and their license may be withdrawn, assuming that Company A is unable to survive the next 12 months after being reported on by the auditors.

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