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(In response to my previous question…
“MikeLittle, Can you pleas help me understand what does “GC assumption appropriate, but with Material Uncertainty” AND “GC assumption inappropriate” mean, so that I can understand the reporting technique”.
…on which I can no longer reply.)I guess I’ve got it.
So, according to what I’ve understood, there can be 4 situations:
1. When an entity is suspected of a GC problem, but depends significantly on a material, which is uncertain AND has disclosed adequately.
Eg. Payment worth 90% of PBT awaited from client; and there exists an uncertainty of the client going bankrupt.=> Unmodified Opinion followed by ‘Material
Uncertainty Related to Going Concern2. When an entity has significant GC issue AND has disclosed adequately.
=> Unmodified Opinion, EoM if required.
3. When an entity is suspected of a GC problem, but depends significantly on a material, which is uncertain AND has the entity has not disclosed the issue adequately.
=> Qualified Opinion/Adverse Opinion.
4. When an entity has significant GC issue BUT has not disclosed adequately
=> Adverse.
Is the above correct?
Thank you so much in advance!!
1) Agreed
2) I think the auditors will view the second situation the same as the first – material uncertainty re going concern
For 1) and 2) this extract is relevant:
“… if the use of the going concern basis of accounting is appropriate but a material uncertainty exists and management have included adequate disclosures relating to the material uncertainties the auditor will continue to express an unmodified opinion, but the auditor must include a separate section under the heading ‘Material Uncertainty Related to Going Concern’ and:
draw attention to the note in the financial statements that discloses the matters giving rise to the material uncertainty, and
state that these events or conditions indicate that a material uncertainty exists which may cast significant doubt on the entity’s ability to continue as a going concern and that the auditor’s opinion is not modified in respect of the matter
3) For 3) and 4), this extract is relevant:
“It should be noted that where the uncertainty is not adequately disclosed in the financial statements the auditor would continue to modify the opinion in line with ISA 705, Modifications to the Opinion in the Independent Auditor’s Report.”
Finally, this extract is also relevant to your enquiry:
“Over and above the new reporting requirements under ISA 570, candidates need to understand how issues identified regarding going concern interact with the requirements of ISA 701.
By their very nature, issues identified relating to going concern are likely to be considered a key audit matter and hence need to be communicated in the auditor’s report.
Where the auditor has identified conditions which cast doubt over going concern, but audit evidence confirms that no material uncertainty exists, this ‘close call’ can be disclosed in line with ISA 701.
This is because while the auditor may conclude that no material uncertainty exists, they may determine that one, or more, matters relating to this conclusion are key audit matters.”
I believe that that answers all your points
OK?
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