Question

GeoPetro is independent oil and natural gas Company with headquarters in San Francisco, California. It recently received an audit opinion that expressed a going concern paragraph. The following is an excerpt from GeoPetro’s 2012 report: The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has incurred recurring net losses that have resulted in an accumulated deficit of $49.7 million as of December 31, 2012. Also, the Company has limited cash and working capital to fund its future operations. These factors raise substantial doubt about the ability of the Company to continue as a going concern. Management’s plans regarding those matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Required:

a. What is the general purpose of an auditors’ report?

b. What is a going concern? Define it in your words, don’t quote the book.

c. Are losses, restructuring, and the disposal of segments necessarily precursors (Predecessor, causes) to the demise of the company?

d. What, in your words, are the auditors saying about these particular companies?

Answer 1

a.

As per the auditors report is concerned the auditor is trying to stress regarding cash and the working capital is less to met the operation of the concerns and total deficit is $49.7 millions is also mentioned in the report for alertness of the organization for the future. so specially for the four points auditors report is prepared

for cash

for working capital

deficit amount

going concerns

b.

Going Concerns

It is one of the concept of accounting where it is treated as business is an going concerns as have must sufficient cash availability proper working capital (Current Assets - Current Liabilities)

It is also treated as "man may come, man may go, but I go on forever" HERE I STAND for the company. SO AUDITOR mentioned again and again the word going concerns it means in the business profit and the losses are the part but company always take steps to reduced losses and efforts to increase the revenue and make profit as firm is not for single year for for two it may be forever and always make efforts to meet the day to day expenses like working capital of the business.

c.

It is true to some extent that if the losses occurs continuously, than it is case for the demises of the company but efforts are taken to control over it and tries to minimize the losses and step in the positive way taken to reduce the losses and control those activities which result to these losses and unproductive activity.

Restructuring here means the internal arrangement of the concerns and efforts taken to restructure the things and make it in profitable. Although restructure also possible from the outside source

d.

Normally, every auditor tries to save the client FROM THE LOSSES and also make effort to reduce the losses and make client businesses in smooth way working and every steps taken for the betterment of the business and make strong internal control system so that business protect from the losses and also preplanned is made to save the firms and their assets

-Must available all the time cash , working capital to meet day to day expenses

-To make internal control SYSTEM stronger

-Make policy as per

Detection

Prevention

Correction

So, the main aim is to protect the business from losses due to this reason in the report deficit is indicated the limitation of cash , working capital arrangement.