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Janet and Mike are eating lunch one day in the cafeteria of one of their major audit clients, and are discussing the topic of going concern. Janet was not familiar with this term, and so Mike explained its meaning to her. Janet proceeds to ask Mike why this would be the auditors responsibility to examine, as it would seem like management should take care of this. Which of the following is Mike's best response to this statement?

While the auditing firm is not required to audit a client's ability to operate as a going concern, we typically audit this anyway because if the client can prove it holds a strong liquidity position; this will help increase the cost of capital associated with future equity offerings.

It is true that the auditors are not technically responsible for ensuring the client firm can viably continue as a going concern. However, if the client has liquidity or solvency problems, this could affect the client's ability to pay us in the future.

While it's fair to say that overall responsibility for the client's ability to remain as a going concern rests with management, this is still something we examine. As an independent, impartial auditor, we owe a duty of care to the client's stockholders, and thus we have to evaluate this.

Generally accepted auditing standards require that the audit firm, as part of an attestation engagement, take responsibility for and audit the client's going concern assumption.

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