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Going Concern in Audit Report

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AA Exams › Going Concern in Audit Report

  • This topic has 4 replies, 2 voices, and was last updated 8 years ago by Ken Garrett.
Viewing 5 posts - 1 through 5 (of 5 total)
  • Author
    Posts
  • August 18, 2016 at 3:09 am #333848
    Vineeth
    Member
    • Topics: 32
    • Replies: 40
    • ☆☆

    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?

    August 18, 2016 at 5:32 am #333859
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10595
    • ☆☆☆☆☆

    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.

    August 18, 2016 at 7:41 am #333891
    Vineeth
    Member
    • Topics: 32
    • Replies: 40
    • ☆☆

    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?

    August 18, 2016 at 11:15 am #333923
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10595
    • ☆☆☆☆☆

    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.

    August 18, 2016 at 11:16 am #333924
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10595
    • ☆☆☆☆☆

    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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