AAA – L3 – SA – Q4.10 – Reporting

What should an auditor do if a material uncertainty about going concern is disclosed?

Question

A company prepares its financial statements on a going concern basis, but a material uncertainty exists about the ability of the company to continue as a going concern which is fully disclosed by management in the financial statements. In this situation, what shall the auditor do?

A The auditor’s report shall contain a ‘Material Uncertainty Related to Going Concern’ paragraph

B The auditor’s report shall state an adverse opinion

C The auditor’s report shall state a disclaimer of opinion

D The auditor’s report shall contain an ’emphasis of matter’ paragraph

Answer

Explanation: When a material uncertainty about going concern is fully disclosed by management, the auditor includes a ‘Material Uncertainty Related to Going Concern’ paragraph in the report to highlight the issue, provided the financial statements are fairly presented. An adverse opinion (B) is issued when financial statements are materially misstated, which is not the case here. A disclaimer of opinion (C) applies when the auditor cannot obtain sufficient evidence, not applicable here. An emphasis of matter paragraph (D) is used for other significant matters, not specifically for going concern uncertainties.

Tags: Auditor’s Report, Disclosure, Financial Statements, Going Concern, Material Uncertainty
Level: Level 3

Topic: Reporting

Uploader: Salamat Hamid