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Dear teacher,
Please comment if they need any corrections.
Situations of going concern from management’s perspective
1) Management reviews GC and prepares FS using GC assumption as no uncertainty exists => Unmodified audit report.
2) Management reviews GC and find a MURGC and prepares FS using GC assumption with ADEQUATE disclosure of MURGC => MURGC para in audit report
3) Management reviews GC and find a MURGC and prepare FS using GC assumption with INADEQUATE disclosure of MURGC => Qualified/Adverse opinion due to disagreement in audit report
4) Management reviews GC and find multiple uncertainties and prepare FS using GC assumption with ADEQUATE disclosure of MURGC => Disclaimer of opinion in audit report
5) Management reviews GC and prepare FS not using GC assumption (for example, using a liquidation basis) with ADEQUATE disclosure about the basis => Emphasis of Matter para in audit report.
6) Management reviews GC and prepare FS using GC assumption. GC assumption is inappropriate => Adverse opinion.As always, thanks !!
I don’t have the time resources to “audit” individual student’s notes – the implications of going concern for the auditor’s report are well covered in our AA and AAA notes.
Just this once I will comment on what you have suggested – overall you understand the implications however, in 1) you should be referring to unmodified OPINION – the terms modified/unmodified concern only the audit opinion.
The term MURGC para refers to the additional para in the auditor’s report – I suggest you do not use the same shorthand to refer to management’s disclosure in the financial statements in accordance with IAS 1.Re 3) – I personally would say that because the auditor is qualifying for a lack of disclosure in the accounting policy note concerning the basis of presentation – “except for” (qualified) is sufficient. I know the ISA suggests adverse is possible but think about it – the lack of a disclosure note cannot be pervasive to the financial statements as a whole.
Re 4) – disclaimer is only a possibility/consideration “in extremely rare cases” – the fact that there is more than one material uncertainty does NOT mean “automatic” disclaim.
Dear tutor,
Noted each point and thank you so much for all of your helpful comments.
Thanks again,
Salman – I have now corrected the # ref in my reply so it is not confusing to other students who may find this post helpful – my apologies for that.
Dear tutor,
As you said “the terms modified/unmodified concern only the audit opinion”, I check the standards and found that standards have used modified/unmodified with opinion (for example, ISA 705 says all about modifications of opinion which are Qualified, Adverse and Disclaimer) and there are separate standards for additional paras of Emphasis of Matter Para and Other Matter Para which is ISA 706. ISA 701 is about KAM. ISA 570 is about going concern covering MURGC.
But in BPP study text, they have divided audit report into:
1) Unmodified report which is unmodified opinion infact.
2) Modified report with unmodified opinion – Covers Emphasis of Matter Para, Other Matter Para, MURGC para
3) Modified audit opinions – Material misstatements, and Scope limitationSo should I follow BPP’s classification and answer “Unmodified audit report having unmodified opinion” or should I follow standards and answer “Unmodified opinion and without adding any additional para in audit report”
Thanks,
So – you agree – the ISAs refer only to modified/unmodified opinions – so I think you can take that to be correct use of the descriptors “modified/unmodified”.
If you refer to page 119 of our notes you will see that I have taken care to avoid referring to unmodified/modified report – so I would go with your 2nd suggestion rather than use what is an obsolete and confusing term.
Dear tutor,
Ok. Thank you so much !
One last thing, previously when I studied audit, I was using term “audit report”.
Now everywhere, the term is “auditor’s report”. Should I use this term or I can use “audit report” as well in answering?
I personally find it helpful to think “auditor’s report” and “audit opinion” – it helps me take care to refer accurately to what it is I mean. You wouldn’t be penalised be referring to “audit report” or “auditor’s opinion” – it’s whether it’s the opinion or the report that you mean that is important.
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