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The directors of Co. X are unhappy that the audit partner requires the disclosure of the material uncertainty that exists relating to the company’s ability to continue as a going concern. The directors believe that any disclosure indicating that the company’s going concern is in doubt will economically damage the business. They are refusing to make the necessary disclosure.
In this case, the effect on the audit report if the going concern issues are inadequately disclosed will be a Qualified opinion or an Adverse opinion?
It would be a qualified opinion. All that is missing from the FS is the note disclosing a going concern problem and it is difficult to see how you would justify an adverse opinion for a missing note. All the figures in the FS are presumably fine and are of use to the shareholders.
The audit qualification will effectively make the disclosure anyhow.
But I was presuming the FS prepared is also wrong. How can we be so sure that FS is prepared properly? Has this been mentioned anywhere in the question since I could not figure it out?
To justify preparing the FS on a break-up basis there has to be no realistic chance of the company surviving. That is quite different from material uncertainty, which is really just a material risk.
If the break-up basis were applicable (and you would need to be told that the company was at imminent risk) but the FS were drawn up on the going concern basis then you would have to give an adverse opinion as the FS are clearly rubbish.
To justify preparing the FS on a break-up basis there has to be no realistic chance of the company surviving. That is quite different from material uncertainty, which is really just a material risk.
If the break-up basis were applicable (and you would need to be told that the company was at imminent risk) but the FS were drawn up on the going concern basis then you would have to give an adverse opinion as the FS are clearly rubbish.
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