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Hi Sir Mike!
In the updated version of the answer, there was an audit client being sued for an amount material to both SOFP and SPL but their lawyers said it was possible and not probable to be paid.. the company included this in a note to the FS.. correctly applied the accounting principle.
Then the answer states that auditors should consider going concern and due to material nature should be included in Emphasis of Matter paragraph.
I was thinking if we could instead say that this should be included in Material Uncertainty Relating to Going Concern instead? And so no EOM. How do we choose between this two?
Thanks!
KylerYou’re correct in that, if it’s the one, then it isn’t the other
However I believe that to include it as a material uncertainty re going concern is to give out the wrong message.
The lawyers have indicated that payment is merely a possibility so it could well be that the statement of financial position shows a healthy picture
Were you to include a material uncertainty re going concern paragraph within the audit report … I believe that this would lead to major confusion
Furthermore, just because the amount is potentially material to both primary statements does not of itself mean that the entity is facing going concern problems
The suggested solution includes the point that the auditor should consider the impact on going concern but there’s no indication that something greater than a simply “consider” is appropriate
OK?
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