Final answer:
The correct action for auditors when there is doubt about an entity's going concern is to consider the potential effects on its financial statements and auditor's report, not to withdraw from the engagement or seek capital for the client.
Step-by-step explanation:
After considering management's plans, if auditors determine there is substantial doubt about the entity's ability to continue as a going concern, B. The next steps are to consider the possible effects on the financial statements and on the auditor's report.
This step is crucial because it will determine the type of opinion the auditor will issue in the auditor's report, and it may include a paragraph highlighting the concern about the entity's ability to continue as a going concern.
Auditors need to evaluate the financial conditions and management's plans to alleviate such doubts, including reviewing whether the entity may need to access financial capital through bank borrowing, issuing bonds, or issuing stock.
Each of these options has implications for the company's financial future and control. Borrowing allows the firm to maintain control but comes with fixed interest payments, while issuing stock dilutes ownership and introduces responsibilities towards a board of directors and shareholders.