Cite reference in the answers Laura Goodson is a staff-level auditor for Wright

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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?

Explanation / Answer

1.

So on the basis of above information it is clear that due to new innovative technology all existing and future demands of the NTC will be zero. That is why it will affect NTC’s ability to remain a going concern. Without existing and future demand a firm can not run hence this firm have to shut down its’ operations because if a firm is not able to recover its minimum costs then continuing with the operations always results into great amount of losses. Thus after some time firm have to close it opeartions.

So as a result it is clear that NTC’s ability to remain a going concern will be affected.

2.

If a particular firm were to go out of business due to competition from the other then it will create some issues which may affect public interests.

Suppose if a firm go out of the business then prospective customers will have less choices in the market hence it will affect existing & prospective customers as well. Apart from this it will reduce number of jobs, and as a result it will affect earnings of the public and living standards as well. This will also affect real investors of the firm too.

Thus we can say that it will make some negative impacts on various stakeholders of the firm.

3.

Auditors always have some obligations towards public. As we know that there are always various stakeholders to a firm and these stakeholders rely on the report of the auditors. So auditors are responsible to provide true & fair informatioon about the firm hence we can say that auditors can not escaped from their obligations towards stakeholders of the firm.

So it is clear that auditors always have some obligations towards public.

4.

If I were a Laura, then first of all, I will do a true study of the financial statements of both firm because failure of any firm in the market will affect various statements. Thus it will be my duty to do a true study of the financial statements so that no fraud can be taken place in the financial statements of a firm. And as a result true & fair financial information can be delivered to the various stakeholders.

Thus as a result we can say that an auditors should check carefully every type of huge research & development expenditure because such huge expenditures may affect present & future position of the firm and this also affect various stakeholders as well.

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