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Hi sir, for june 2012 f8 exam question 5d(ii) ,
In the answer key, it states that a adverse opinion is required . How did they conclude that the misstatement is material and pervasive ?
There is one statement in the financial statement that says “an adverse opinion will be required regardless of whether or not the financial statements include disclosure of the inappropriateness of management’s use of the going concern assumption as the financial statements are materially misstated. ” i dont understand this sir, could you explain ?
If the company is not a going concern and the directors agree to amend the financial statements, then the audit opinion will be unmodified as there is no material misstatement. But the audit report will be modified with a section headed ‘material uncertainty related to going concern’.
Am i right sir ?
If you have serious concerns that the company will not survive, and the FS do not reflect that, then it is hardly a trivial matter is it? The FS are, in the auditor’s opinion, a work of fiction.
The FS have been prepared on a going concern basis. If that is not appropriate (ie a break-up basis would be appropriate instead) the FS do not show a T&F view.
A distinction has to be made between
Some doubt/danger as to going concern (prepare FS on GC basis, no change in audit opinion provided disclosed in FS and also a paragraph in the audit report)
Serious concerns ie you believe that survival is next to impossible (prepare FS on break-up basis).
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