i) Possible Reasons for Directors’ Reluctance:

• The note could send a negative signal to stakeholders, including potential creditors, who may refuse to provide the necessary finance due to doubts about the company’s going concern status.
• Trade creditors may become wary and switch to cash on delivery terms, further straining the company’s liquidity.
• If Racific Co. is a listed entity, the share price could fall, affecting market perception and investor confidence.
• Existing shareholders might lose confidence in the management’s ability to run the company effectively.
• Competitors or predators might view this as a signal to make a takeover bid for the company.

ii) Implications for the Auditors:

• If the directors refuse to include the note, the financial statements may be considered materially misstated due to the lack of disclosure of the going concern uncertainty.
• The auditors may conclude that this disagreement requires the issuance of an audit opinion other than unmodified, possibly an adverse opinion or a disclaimer of opinion, depending on the severity of the omission.
• The refusal could be seen as a lack of cooperation or an attempt to engage in fraudulent financial reporting, which could lead the auditors to reassess their relationship with the client.
• The auditors might need to consult legal counsel and consider escalating the issue to the shareholders, potentially at the annual general meeting.