Financial Difficulty: The “Going- Concern” Problem. Pitts Company has experienced significant financial difficulty. Current liabilities exceed current assets by $ 1 million, cash has decreased to $ 10,000, the interest on the long- term debt has not been paid, and a customer has brought a lawsuit against Pitts for $ 500,000 on a product liability claim. Significant questions concerning the going- concern status of the company exist. The lawsuit and information about the going- concern status have been appropriately described in footnote 3 to the financial statements.

Required:

a. Draft AOW’s report, assuming that the auditors decide that an unmodified opinion instead of a disclaimer of opinion is appropriate in the circumstances.

b. Draft AOW’s report, assuming that the auditors decide the uncertainties are so over-whelming that they do not wish to express an opinion on Pitts’ financial statements.