| Course | AC503 Advanced Auditing |
|---|---|
| Unit | Unit 9 |
| Paper type | Going concern evaluation |
| Length | About 620 words, 5 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MS in Accounting |
| Updated | October 2026 |
Free sample paper for AC503 Unit 9
Four Plans, One Probable: A Unit 9 Going Concern Evaluation for a Cold-Chain Operator Facing a $22 Million Balloon
[Student Name]
Purdue University Global
AC503: Advanced Auditing
Unit 9 Going Concern Evaluation
[Instructor Name]
[Date]
Polar Ridge Cold Logistics, its customer, lender, owner and every figure are composite; the standards and textbook cited are real.
The Period
For a private company, the look-ahead period runs one year from the date the financial statements are available to be issued (Financial Accounting Standards Board [FASB], 2014). The statements are expected to be available on March 20, 2027, so the period runs to March 20, 2028. The auditor evaluates management's assessment over the same period and considers whether it is adequate (American Institute of Certified Public Accountants [AICPA], 2017).
Conditions
Four conditions, considered together, raise substantial doubt. The largest customer, a regional grocery chain that provides 38 percent of storage revenue, gave notice in January that it will move to its own distribution center by September 2027. The bank term loan carries a $22,000,000 balloon payment due on December 15, 2027, inside the period. The fixed-charge coverage ratio stood at 1.02 at year end against a required 1.20, and the bank's waiver of that test expires on June 30, 2027. Operating cash flow for 2026 was negative $3,100,000. Any one of these might be manageable; together, they mean the company cannot meet its obligations within the period without action it does not control.
Management's Plans
Management presented four plans. Each was evaluated for the evidence behind it, whether it is probable of being effectively implemented within the period, and whether, if implemented, it would mitigate the conditions.
Plan 1: Refinance the balloon with a new lender. Evidence: a nonbinding term sheet from a specialty lender, conditioned on due diligence and on the grocery chain's renewal. Since the grocery chain has already given notice, the condition cannot be met as written. Not probable.
Plan 2: Sale-leaseback of the largest warehouse for about $18,000,000. Evidence: a letter of intent from a real estate investor, with no price agreed and an appraisal not yet ordered. Not probable within the period on this evidence.
Plan 3: Equity contribution from the private equity owner. Evidence: a signed commitment to contribute $6,000,000 by May 31, 2027, approved by the fund's investment committee, with the fund's latest financial statements showing undrawn capital well above that amount. Probable, and it would cover the 2027 operating cash shortfall.
Plan 4: Cost reductions. Evidence: a plan to close one shift at the facility serving the grocery chain, saving about $2,400,000 a year. The savings depend on the chain actually leaving, and some costs, such as the building lease, continue. Partly probable, but it does not address the balloon.
Only the owner's signed, funded commitment meets the probability test, and $6,000,000 cannot repay a $22,000,000 balloon, so the plans that would solve the real problem are the ones the evidence does not support.
Conclusion
Management's plans do not remove the substantial doubt that Polar Ridge can keep operating through March 2028. The equity contribution and the cost reductions ease the operating shortfall but leave the balloon unpaid in December 2027 unless refinancing or the sale-leaseback succeeds, neither of which is probable on current evidence.
Disclosure Check
Because the doubt remains, the notes have to describe the conditions behind it, how management judged them, what management intends to do, and state plainly that substantial doubt exists. The draft note includes the first three but describes the refinancing as "expected," which overstates a nonbinding term sheet. Management has agreed to revise that wording. The auditor's report will include a separate going concern section referring to the note (Arens et al., 2020).
References
American Institute of Certified Public Accountants. (2017). The auditor's consideration of an entity's ability to continue as a going concern (Statement on Auditing Standards No. 132). AICPA.
Arens, A. A., Elder, R. J., Beasley, M. S., & Hogan, C. E. (2020). Auditing and assurance services (17th ed.). Pearson.
Financial Accounting Standards Board. (2014). Presentation of financial statements: Going concern (Subtopic 205-40): Disclosure of uncertainties about an entity's ability to continue as a going concern (Accounting Standards Update No. 2014-15). FASB.
Reading the AC 503 Unit 9 instructions
Unit 9 of AC503 asks you to evaluate management's going concern assessment. Define the look-ahead period correctly for the type of entity. List the conditions and events and explain why, considered together, they raise substantial doubt. Evaluate each of management's plans for the evidence behind it, whether it is probable of being effectively implemented within the period, and whether it would mitigate the conditions if implemented. Distinguish binding commitments from letters of intent and term sheets. Conclude on whether substantial doubt is alleviated. Check the draft disclosure against what the framework requires and correct any wording that overstates a plan. State the effect on the auditor's report. Draw on both going concern standards and the assigned text, cited in APA 7.
Inside the AC503 Unit 9 example
The sample sets the period from the March 20, 2027 issuance date to March 20, 2028. A conditions section explains the customer's notice, the December balloon, the covenant ratio and waiver, and the cash burn, and why together they create doubt. Four plans are evaluated: a nonbinding refinancing term sheet whose condition has already failed, a sale-leaseback letter of intent with no price, the owner's signed and funded $6,000,000 commitment, and cost reductions that do not reach the balloon. The highlighted sentence explains why one probable plan falls short. The conclusion finds doubt unalleviated, and the disclosure check corrects a note calling refinancing expected and adds a going concern section to the report.
AC503 Unit 9 rubric: what earns full points
Going concern evaluations in AC503 earn points for applying the probability test to each plan with evidence. Graders check the look-ahead period, the aggregation of conditions and the distinction between binding and nonbinding plans. The rubric rewards asking whether a probable plan is large enough to mitigate the conditions, not only whether it will happen. Disclosure review should compare the note with each required element and correct overstatements. The effect on the report must be stated correctly. Evaluations that accept management's plans at face value, or that treat a letter of intent as probable, receive little credit. Both standards belong in APA 7 references.
Common AC503 Unit 9 mistakes, and how to avoid them
Common Unit 9 problems start with the wrong look-ahead period, such as twelve months from the balance sheet date for a private company. Conditions are listed without explaining their combined effect. Plans are accepted because management believes in them, without evidence of commitment or capacity. A probable plan is treated as alleviating doubt even when it cannot cover the obligation. Disclosure is assumed adequate. The report effect is described as a qualified opinion. If your section's client has different conditions or plans, we can prepare the evaluation from your client's facts and disclosure check from your facts. Some evaluations also forget to update the analysis to the report date, so a waiver or commitment signed in the final weeks is missed. Check the latest correspondence with the lender and owner before concluding.
Get an AC503 Unit 9 example written to your instructions
Attach the conditions and management's plans from the Unit 9 case, any forecast it supplies, and the rubric. Each plan is tested for probability and for effect separately, and the evaluation concludes on substantial doubt with the disclosures that follow, within 24-48h. A first custom sample is provided at no charge, and the look-ahead period follows the framework your case applies. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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AC503 Unit 9 questions, answered
Why does a signed letter of intent not count as a probable plan?
Because it binds no one to close. The buyer can walk away after diligence, and price and terms can change. Probability of implementation needs stronger evidence, such as a binding agreement, a committed financing source or a history of similar transactions closing. The AC503 example records the letter as a positive sign and still concludes it does not reach probable.
What must the notes say when doubt is not alleviated?
The framework requires disclosure of the conditions that raised doubt, management's evaluation of their significance, management's plans, and a statement that substantial doubt exists about whether the entity can continue as a going concern within the period. The example checks the draft note against each element and flags one omission, the covenant waiver's expiry date.
Where can I find a free AC503 Unit 9 sample paper?
This page holds a full AC503 Unit 9 going concern evaluation of Polar Ridge Cold Logistics with four conditions, four plans tested for probability, a conclusion, a disclosure check and APA 7 references.
Why does the owner's commitment count as probable when the refinancing does not?
The owner signed a commitment approved by its investment committee and has undrawn capital to fund it. The refinancing rests on a nonbinding term sheet whose key condition, renewal by the grocery customer, has already failed.
Can a sale-leaseback letter of intent alleviate doubt?
Not on its own. A letter of intent with no agreed price and no appraisal binds no one to close, so it is not probable of being implemented within the period. A signed agreement with financing in place would be stronger evidence.